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The S&P 500 (^GSPC) closed above 5,000 for the first time on Friday, as the three major averages posted a positive week for the 13th time in the last 14 weeks.
With few economic catalysts in the last week, investors have been digesting a series of corporate results that have been better than expected. Meanwhile, comments from Federal Reserve officials largely reiterated the central bank’s stance that more confidence in inflation’s downward trajectory is needed.
However, the week will bring new challenges to the market rally, with a new reading on inflation and consumer spending highlighting the economic calendar. On the corporate side, about 15% of the S&P 500 will report gains led by John Deere (DE), Coinbase (COIN), Airbnb (ABNB), and Shopify (SHOP).
Price check
On Tuesday morning, investors will know the consumer price index (CPI) for January. Wall Street expects a 2.9% annual gain for the headline CPI, which includes food and energy prices, a notable decline from December’s headline figure of 3.4%. Prices are expected to rise 0.2% month-on-month, in line with December’s increase.
On a “core” basis, which excludes food and energy prices, inflation is expected to have risen 3.7% year over year, a slowdown from the 3.9% rise seen in December. Monthly increases in underlying prices are expected to reach 0.3%, unchanged from the previous month.
“We expect more commodity deflation this month, driven primarily by weak used car prices,” Morgan Stanley economist Diego Anzoátegui wrote in a note to clients on Thursday. “A gradual slowdown is confirmed, but services inflation remains stable with some slowdown in rental inflation, but a slight rebound in insurance and hotel prices.”
Consumer status
Part of the soft landing thesis that has gripped markets in recent months has been consistently better-than-expected data on consumer spending. A new read on that trend will greet investors Thursday with the January retail sales report. Economists expect retail sales to decline 0.2% in January from the previous month.
Bank of America U.S. economist Michael Gapen anticipates a “soft” print due to seasonal factors and widespread winter storms that likely weighed on retail spending in January. But Gapen doesn’t think this will change the overall narrative for the consumer.
“However, noise aside, the consumer looks healthy, with upside risks to spending due to accelerating real wages,” Gapen wrote in a note to clients.
The real wage metric Gapen references, which is the wage Americans see after subtracting overall inflation from their wage growth, recently appeared on the Yahoo Finance Chartbook as one of the reasons the U.S. economy has avoided recession amid higher interest rates.
One last look at traditional cars.
After Tesla’s (TSLA) earnings report disappointed investors, traditional automakers Ford (F) and GM (GM) surprised to the upside. Stellantis (STLA), the parent company of Chrysler and Fiat, is set to report on Thursday, making it the latest Big Three automaker to report earnings this cycle.
Yahoo Finance Pras Subramanian reports: While the United Auto Workers (UAW) strike that stretched into October will likely impact operating margins, Stellantis is expected to see revenue rise more than 5% to €189.3 million, with net income Adjusted increased 9.7% year over year to 18.4 billion. euros, according to Bloomberg estimates.
Stellantis CEO Carlos Tavares has been criticized in the past for not moving faster in the company’s transition to electric vehicles; He now seems prescient, as demand for electric vehicles has apparently declined in recent months. Shares of the big three automakers, Ford and GM, have risen following strong earnings reports, as the two Michigan-based automakers’ traditional gasoline businesses project strong profits for 2024.
Investors will be looking for Stellantis to offer more of the same with an outlook that sees earnings growth and limits capital outlays on electric vehicles.
Profit breadth expands
In general, the benefits have been increasingly positive. Given that 75% of S&P 500 companies have reported earnings, the benchmark is on track to report its second consecutive quarter of earnings growth. And in particular, analysts expect earnings growth to continue over the next two years.
In a note to clients on Friday, Deutsche Bank chief equity strategist Binky Chadha highlighted that 83% of US companies are beating earnings estimates. According to Chadha’s research, this is the highest mark in two years and “well above the upper end of its pre-pandemic range.” It’s also significantly higher than rates in other countries, which could be an indicator of why U.S. stocks are outperforming other markets.
“Historically, these elevated rates have been seen only in the early stages of recovery from major cyclical shocks,” Chadha wrote.
Several strategists recently noted a Yahoo Finance-like trend in explaining how the S&P 500 could reach new highs later this year without outsized contributions from some big tech stocks that have been driving market action lately.
“As investors stop worrying so much about exactly when the Federal Reserve will start cutting rates, I think we’ll see a lot of these companies outside of the Magnificent Seven have pretty strong earnings growth, and that will make them do quite well.” instead,” Ben Snider, equity strategist at Goldman Sachs, told Yahoo Finance.
Weekly calendar
Monday
Economic data: New York Fed one-year inflation expectations, January (previously 3.01%)
Profits: Avis Budget Group (CAR), Monday.com (MNDY), Waste Management (WM), Zoominfo Technologies (ZI)
Tuesday
Economic Data: NFIB Small Business Optimism, January (previously 91.9); consumer price index, month-over-month, January (+0.2% expected, +0.3% previously); Core CPI, month-over-month, January (+0.3% expected, +0.3% previously); CPI, year-over-year, January (+2.9% expected, +3.4% previously); Core CPI, year-over-year, January (+3.7% expected, +3.9% previously); Average real hourly wage, year over year, January (+0.8% previously)
Earnings: Airbnb (ABNB), AutoNation (AN), Biogen (BIIB), Coca-Cola (KO), Datadog (DDOG), Hasbro (HAS), Instacart (CART), Marriott International (MAR), Lyft (LYFT), MGM Resorts (MGM), Moody’s (MCO), Robinhood (HOOD), Shopify (SHOP), Upstart (UPST), Zillow Group (ZG)
Wednesday
Economic Data: MBA Mortgage Applications, Week Ending February 9 (+3.7%)
Earnings: Albermarle (ALB), Cisco (CSCO), CME Group (CME), Generac (GNRC), Kraft Heinz (KHC), Occidental (OXY), Sony (SONY), Sunoco (SUN), Twilio (TWLO)
Thursday
Economic data: Initial jobless claims, week ending February 10 (218,000 previously); Retail sales, month-over-month, January (-0.2% expected, +0.6% previously); Retail sales excluding automobiles and gasoline, January (+0.2% expected, +0.6% previously); Import prices, month-over-month, January (-0.1% expected, +0.0% previously); Export prices, month-over-month, January (-3.2% previously); Industrial production, month-over-month, January (+0.4% expected, +0.1% previously); NAHB Housing Market Index, February (44 before)
Profits: Applied Materials (AMAT), Coinbase (COIN), Crocs (CROX), DoorDash (DASH), DraftKings (DKNG), John Deere (DE), Penn National (PENN), Oatly (OTLY), Roku (ROKU), Stellantis ( STLA), The Trade Desk (TTD), Toast (TOST), Wendy’s (WEN), Yeti (YETI)
Friday
Economic data: producer price index, month-over-month, January (+0.1% expected, -0.1% previously); PPI, year-over-year, January (+1% previously); University of Michigan Consumer Confidence, February Preliminary (expected 79.0, previously 79.0); Month-over-month construction permits, January (1.5% expected, 1.8% previously)
Earnings: Air Canda (ACDVF), Cinemark (CNK)
Josh Schafer is a Yahoo Finance reporter. Follow him on X @_joshschafer.
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