(Boursier.com) — US stock market news will be dominated this week by quarterly company publications, which will accelerate. Investors will also keep a close eye on interest rates, pending the monetary tightening announced by the Fed. This Monday, Wall Street is closed for Martin Luther King Day. Among the companies publishing their accounts for the 4th quarter of 2021 this week are Goldman Sachs, Morgan Stanley, netflix, Procter & Gamble or American Airlines.
Last Friday the Dow Jones fell 0.56% to 35,911 points, while the broad index S&P500 gained 0.08% at 4,662 pts, and that the Nasdaq Composite, rich in technology and biotech stocks, gained 0.59% to 14,893 pts. Since the start of the year, the DJIA has lost 1.1%, the S&P 500 has dropped 2.1% and the Nasdaq has lost 4.8%, on fears of a tightening of monetary policy by the Fed.
At least 3 Fed rate hikes expected this year
After an avalanche of statements in favor of a rate hike cycle starting in March, Fed officials will be silent this week, observing the rules of discretion in the run-up to the January 25-26 meeting. Markets are awaiting clarification from this meeting on the pace and number of rate hikes, as well as the timing of the Fed’s balance sheet reduction. Markets are expecting at least 3 year debt rate hikes.
On the bond markets, yields have tightened significantly since the beginning of 2022, the rate of the T-Bond at 10 years rising from 1.5% to almost 1.78% on Friday evening, the highest for more than two years.
Experts are divided on the potential negative effects of monetary policy normalization on equities. While higher interest rates make growth stocks, especially technology, appear very expensive, the rise in rates corresponds to a period of strong economic recovery (or even overheating), which should be favorable to corporate earnings, especially for the basic materials sectors and for companies that will have the ability to transfer their cost increases to their selling prices (“pricing power”).
Expected profits up more than 20% in the 4th quarter of 2021
Thus, JP Morgan Chase remains optimistic for 2022, estimating in a note that corporate earnings will, as in recent months, allow the markets to go higher. “We remain very positive on the earnings outlook for 2022, expecting another year of significant overruns,” JPM strategists said in a note picked up by ‘Bloomberg’. “Despite the fears of many over mounting input cost pressure, profit margins have been very strong over the past year, reaching new highs in the US and Europe.”
The latest FactSet consensus, published on January 13, expects a 21.8% increase in the profits of the S&P 500 in the 4th quarter of 2021. A notable increase but lower (barring good surprises) than that of the previous quarters (+40% in the 3rd quarter, +91% in the 2nd quarter and +52% in the 1st quarter).
In the first quarter of 2022, the rise in profits of the S&P 500 should slow down significantly to +6.3%, and over the whole of 2022, the EPS should increase by 9.4%, after a jump of 45.2% estimated in 2021 by the FactSet consensus.
Goldman Sachs, Netflix and Procter & Gamble among results to watch
So far, only about twenty, or 4% of the companies in the S&P 500 index have published their accounts, including Delta Airlines, JP Morgan and Citigroup, but the pace will pick up from this week, with several Dow Jones heavyweights including Goldman Sachs (Tuesday), UnitedHealth Group, Procter & Gamble (Wednesday) and travelers (Thursday).
Among the most awaited results are also those of netflix (Thursday) which could again disappoint by the number of its new subscribers. United Airlines Holdings and American Airlines will make it possible to measure the impact of the Omicron variant on the aviation sector, while Baker Hughes and Schlumberger will give the “the” concerning the outlook for oil services in an environment of crude oil prices at their highest since 2014.
In summary, we will therefore follow on Tuesday the announcements of Goldman Sachs, PNC Financial, JB Hunt Transport Services, Interactive Brokers Group, Bank of New York Mellon, Citrix, Charles Schwab and First Bancorp.
Wednesday will be the turn of Morgan Stanley, Bank of America, U.S. Bancorp, State Street Corp., UnitedHealth Group, Procter & Gamble, Kinder Morgan and Fastenal.
Thursday will follow netflix, United Airlines Holdings, American Airlines, Baker Hughes, Discover Financial Services, CSX Corp., Union Pacific, travelers and KeyCorp. Finally, Schlumberger and Huntington Bancshares will close the march on Friday.
Real estate statistics and leading indicators on the “macro” menu in the United States
On the macroeconomic side, the news will be less busy than last week, when the inflation reports (consumer prices and wholesale prices) confirmed the acceleration of prices in December, even if the peak could now be close according to certain signs.
This week, the Empire State manufacturing index and the NAHB index measuring the confidence of American home builders will be published on Tuesday. On Wednesday, we will follow building permits and housing starts in December as well as the activity index of the Philadelphia Fed in January.
Weekly jobless claims will be released on Thursday, along with Existing Home Sales for December, and Oil Inventories (postponed one day, Monday being a holiday). Finally on Friday, the index of leading indicators for December, published by the Conference Board, will make it possible to gauge the outlook for the American economy.