What to know this week

The recent stock market rally, and whether momentum can hold up into February, will be the main focus of the week ahead while investors continue to parse through a torrent of corporate financial results.

Wall Street faces a lean economic calendar in the coming days but a hefty docket of earnings, with companies including Walt Disney (DIS), Robinhood (HOOD), Uber (UBER), and Pinterest (PINS) among headliners set to report figures for the fourth quarter.

While few government data releases are on tap in this first full week of February, on the economic front, remarks by Federal Reserve Chair Jerome Powell will be a highlight of the week. Powell is scheduled to be interviewed by billionaire Carlyle Group founder David Rubenstein at the Economic Club of Washington, D.C. on Tuesday.

U.S. stocks dropped Friday after a stunning January jobs report showed payrolls grew by more than half a million last month, dampening prospects for an imminent pause by the Fed on its rate-hiking campaign — a key factor propelling January’s rally.

U.S. Federal Reserve Chair Jerome Powell attends a press conference in Washington, D.C., the United States, on Feb. 1, 2023. The U.S. Federal Reserve on Wednesday implemented its first rate hike in the new year. The central bank hiked rates by a quarter percentage point, marking the eighth time the Fed has raised rates since it began tightening in March last year. (Photo by Liu Jie/Xinhua via Getty Images) — U.S. Federal Reserve Chair Jerome Powell attends a press conference in Washington, D.C., the United States, on Feb. 1, 2023. (Photo by Liu Jie/Xinhua via Getty Images)

The U.S. economy added 517,000 jobs last month, blowing out economist expectations for a reading of 188,000, while the unemployment rate fell to 3.4% — the lowest since 1969.

Despite Friday’s losses, the S&P 500 and Nasdaq Composite closed the week higher, advancing 1.6% and 3.3% respectively. The Dow failed to eke out a weekly gain, ending the past five trading days down 0.2%.

Equity markets have been on a winning streak to start 2023, with optimism fueled by a recent slowdown in the Federal Reserve’s downshift to smaller rate hikes and markets pricing in rate cuts this year. For the year, the S&P 500 is up 7.7% as of Friday’s close, the Nasdaq 14.7%, and the Dow 2.4%.

Many strategists have expressed doubts about the current rally. Last week at the iConnections Global Alts Conference in Miami, Morgan Stanley’s top equity analyst Mike Wilson — a prominent stock market bull — attributed recent gains to the January Effect, a market theory that implies securities’ prices increase in the month of January more than in any other month after a year-end sell-off for tax purposes.

On Wednesday, the U.S. central bank lifted its benchmark policy rate by another 25 basis points, its eighth hike of the current tightening cycle, while signaling “ongoing increases in the target range.” Despite that hint, markets cheered a suggestion by Chair Powell that signs of “disinflation” were present in the economy.

“Powell embraced the recent disinflation to a greater degree than we were expecting,” economists at Bank of America led by Michael Gapen said in a note published Friday. “Financial markets took a clear dovish signal from Powell’s press conference, with the S&P 500 rallying by nearly 2.4% from the start of the press conference, and the 2-year yield falling by around 14 basis points.”

“Looking ahead, the key question for markets is whether Powell’s dovishness was intentional or accidental,” the team at BofA said, adding that Powell may strike a more hawkish tone during his appearance at the Economic Club this week. “We think the Fed’s embrace of disinflation is genuine and it was always going to be difficult for Powell to send a hawkish message after decelerating the pace of hikes for the second time in as many meetings.”

On the earnings side, profits continue to be subpar into the midpoint of the season. The share of S&P 500 companies reporting positive earnings surprises remained flat over the past week, but the magnitude of upside earnings surprises decreased, largely driven by disappointing results from megacap technology giants, according to FactSet Research.

“As a result, the earnings decline for the fourth quarter is larger today compared to the end of last week and compared to the end of the quarter,” FactSet’s senior earnings analyst John Butters notes. “If the index reports an actual decline in earnings for Q4 2022, it will mark the first year-over-year decline in earnings reported by the index since Q3 2020.

Disney's Chief Executive Officer Bob Iger speaks during the Bloomberg Global Business Forum in New York City, New York, U.S., September 25, 2019. REUTERS/Shannon Stapleton — Disney’s Chief Executive Officer Bob Iger speaks during the Bloomberg Global Business Forum in New York City, New York, U.S., September 25, 2019. REUTERS/Shannon Stapleton

In the coming week, Disney results will be the big event of the earnings calendar.

For Disney, it will be the first time reporting since the return of Bob Iger as chief executive after former CEO Bob Chapek was ousted.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown notes the pressure is on for Iger to prove he has the right ideas to stimulate growth.

“This is especially true in the streaming business, where excessive spending and long-term demand concerns are front of mind,” Lund-Yates said in a note. “For now, consumer spending is holding up better than feared in some areas, so we have faith Disney+ will come good on subscriber additions, especially after Netflix’s better-than-expected quarter, despite tough economic conditions.”

“In theme parks, we expect to hear about positive momentum as China reopens and travel continues to normalize,” Lund-Yates added. “This will have a strong read-across for profits.”

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Economic Calendar

Monday: No notable reports scheduled for release.

Tuesday: Trade Balance, December (-$68.5 billion expected, -$61.5 billion during prior month, revised to -$90.2 billion); Consumer Credit, December ($25.000 billion expected, $27.962 billion during prior month)

Wednesday: MBA Mortgage Applications, week ended Feb. 3 (-9.0% during prior week); Wholesale Trade Sales, month-over-month, November (0.4% during prior month); Wholesale Inventories, month-over-month, November Final (1.0% expected, 1.0% during previous month)

Thursday: Initial jobless claims, week ended Feb. 4 (190,000 expected, 183,000 during prior week); Continuing claims, week ended Jan. 28 (1.660 million expected, 1.655 million during prior week)

Friday: University of Michigan Sentiment, February Preliminary (65.0 expected, 64.9 prior reading); Monthly Budget Statement, January (-$42.0 billion, -$85.0 billion)

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Earnings Calendar

Monday: Activision Blizzard (ATVI), Chegg (CHGG), Cummins (CMI), ON Semiconductor (ON), Pinterest (PINS), Simon Property Group (SPG), Spirit Airlines (SAVE), Take-Two Interactive Software (TTWO), Tyson Foods (TSN)

Tuesday: Assurant (AIZ), BP (BP), Chipotle Mexican Grill (CMG), DuPont (DD), Fortinet (FTNT), H&R Block (HRB), Hertz Global (HTZ) KKR (KKR), Prudential (PRU), Royal Caribbean (RCL), V.F. Corp (VFC), Western Union (WU)

Wednesday: Affirm (AFRM), AllianceBernstein (AB), CME Group (CME), Coty (COTY), CVS Health (CVS), Dominion Energy (D), Equifax (EFX), Fox Corporation (FOXA), Goodyear Tire (GT), Hillenbrand (HI), Mattel (MAT), MGM Resorts (MGM), New York Times (NYT), Penske Auto (PAG), Robinhood Markets (HOOD), Sonos (SONO), Tenet Healthcare (THC), Uber Technologies (UBER), Walt Disney (DIS), XPO (XPO), Yum! Brands (YUM)

Thursday: AbbVie (ABBV), Apollo Global Management (APO), AstraZeneca (AZNL), Brookfield Asset Management (BAM), Canopy Growth (CGC), Duke Energy (DUK), Expedia Group (EXPE), Hilton (HLT), Kellogg (K) Lyft (LYFT), News Corp. (NWSA), PayPal (PYPL), PepsiCo (PEP), Philip Morris International (PM), Ralph Lauren (RL), S&P Global (SPGI), Thomson Reuters (TRI), Under Armour (UAA), VeriSign (VRSN), Willis Towers Watson (WTW), Yelp (YELP)