The Week That Was, The Week Ahead: Macro & Markets, February 18, 2023

Everything to Know about Macro and Markets

Markets snapped their five-week upward streak, closing the week slightly in the red. Trading has been volatile, with market sentiment pulled in opposite directions by mixed economic data and other events.

This will be a holiday-shortened trading week, as the markets will be closed on Monday for President’s Day. While it will be relatively light on economic reports, there are several market-moving events scheduled for the next few days, including the Federal Reserve meeting’s minutes and Nvidia’s (NVDA) earnings.   

As investors continue to focus on the Federal Reserve’s prospective rate-cut timeline, stock movements remain exceedingly sensitive to both positive and negative data surprises. Thus, stocks’ drop on Friday was ignited by hotter-than-expected readings on producer prices, which serve as a short-term leading indicator for consumer inflation.

Jittery Investors

After Tuesday’s CPI disappointment led to the stock market’s worst daily decline in months, the PPI report confirmed concerns that inflation may not be dropping as fast as hoped. Bullishness subsided, as a strong decline in January’s retail sales data failed to counterweigh rising consumer sentiment, which surged to a two-year high.

The S&P 500 (SPX), the Nasdaq-100 (NDX), and the Dow Jones Industrial Average (DJIA) are trading at all-time highs, though stock valuations are considerably stretched. In this environment, it is not surprising that many investors are getting jittery, rushing for the exits at any hint that the economy may be hotter than anticipated. A stronger economy would keep inflation higher for longer, pushing the Fed’s first rate cut to a later date.

What About the Fed Rate Cut?

The Minutes from the Federal Reserve’s last policy meeting, scheduled to be published on Wednesday, are expected to draw a lot of attention. At the meeting on January 31, policymakers confirmed that their next move is expected to be a cut. Still, the timing depends on the Fed seeing strong evidence confirming that inflation is subsiding. While January’s inflation data disappointed, Fed members don’t seem to be overly concerned about data points from just one month. Markets are currently projecting that the Fed will begin easing in June.  

Strong Corporate Earnings Propping Up Markets

While further easing delays are negative for investor sentiment, strong corporate earnings continue to shield stocks from economic uncertainties. With over three-quarters of the S&P 500 companies having already released their quarterly reports, earnings are estimated to have grown by 7% year-over-year, much better than was expected at the start of the reporting season.

This week’s earnings release of Nvidia on Wednesday, the last of the “Magnificent Seven” market leaders to report, may be a crucial moment for the stock rally. After the AI chip designer’s 240% gain in the past year, expectations are extremely high. If the company succeeds in surpassing them, it might add a lot of fuel to the stock-market fire.  

Upcoming Earnings and Dividend Announcements

The Q4 2023 earnings season is drawing to a close, but several important earnings releases are scheduled for this week.

This week’s most significant market-moving event will be the release of Nvidia’s (NVDA) earnings, scheduled after Wednesday’s close.

Other notable earnings reports will be published by Home Depot (HD), Walmart (WMT), Palo Alto Networks (PANW), Public Storage (PSA), Analog Devices (ADI), Synopsys (SNPS), Block (SQ), Booking Holdings (BKNG), Intuit (INTU), and Moderna (MRNA).

This week, Ex-Dividend dates are coming for Target (TGT), Yum! Brands (YUM), Applied Materials (AMAT), AstraZeneca (AZN), Unilever (UL), Raytheon Technologies (RTX), GlaxoSmithKline (GSK), and other dividend-paying firms. In addition, on February 21, Meta Platforms (META) will pay its first-ever dividend of $0.5 a share.