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Earnings extravaganza, FOMC meeting, GDP: What to know in the week ahead

Heidi Chung · Reporter

In This Article:

Several events with market-moving potential will test markets this week.

Last week, U.S. stocks had their first down week this year as the deadly coronavirus sent shockwaves rippling through global markets. Investors will continue to monitor the latest coronavirus developments, but focus will shift this week to a deluge of corporate earnings, the Federal Open Market Committee’s (FOMC) rate decision and economic data.

More than 40% of the S&P 500’s market cap is set to report quarterly results this week. Apple, Starbucks, Boeing, Tesla, Microsoft, Facebook, General Electric, Amazon, Coca-Cola, McDonald’s, Caterpillar, Exxon Mobil and Chevron are among some of the heavyweights expected to report.

“The reaction to earnings has been fairly muted so far, and earnings ‘surprises’ have been in line with Q1-Q3,” Raymond James Chief Investment Officer Larry Adam wrote in his Jan. 24 edition of Weekly Headings. “If this trend continues, Q4 earnings growth should finish closer to 2% (vs -1.5% currently). Q4 earnings season really picks up steam over the next week, and we are interested to hear from certain sectors and stocks. For example, Technology has seen 23% P/E expansion since the end of September; and while earnings estimate revisions have been very stable, it will be important for these companies to meet (or exceed) expectations in order to sustain their price momentum.”

Federal Reserve Chair Jerome Powell arrives for a news conference following the Federal Open Market Committee meeting in Washington, U.S., December 11, 2019. REUTERS/Joshua Roberts
Federal Reserve Chair Jerome Powell arrives for a news conference following the Federal Open Market Committee meeting in Washington, U.S., December 11, 2019. REUTERS/Joshua Roberts

Meanwhile, the Federal Reserve gathers in Tuesday to kick off its first two-day meeting of the year. At the conclusion of the meeting, Fed Chairman Jerome Powell will hold a press conference. Consensus expectations are for the Fed to hold the federal funds target range steady between 1.50% to 1.75% following this month’s meeting.

“Fed officials largely agreed that the policy rate is likely to remain on hold for the near future. Chair Powell stated that a ‘persistent’ and ‘significant move-up’ in inflation would be required to raise rates. Other officials indicated a material change to the outlook would likely be necessary to move rates in either direction.” Goldman Sachs economist Jan Hatzius wrote in a note Jan. 22.

The Fed’s balance sheet will also take centerstage in both deliberations and during Powell’s press conference, according to Morgan Stanley. “Clearer communication is need to allay concerns among investors that an end to building reserves will pull the rug out from under risk assets. The Fed aims to enter the spring with ample reserves and does not see its purchases of T-bills as a key factor in driving risk assets higher,” Morgan Stanley economist Ellen Zentner wrote in a note Jan. 24.

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