The stock market’s record highs are poised for a challenge in the upcoming week as a wave of corporate earnings reports and a fresh reading of the Federal Reserve’s preferred inflation gauge loom on the horizon.
As most financial institutions have wrapped up their reporting, the technology sector will take the spotlight with Netflix (NFLX) announcing its earnings on Tuesday, followed by Tesla (TSLA) on Wednesday.
The earnings calendar for the week is packed, including reports from Johnson and Johnson (JNJ), United Airlines (UAL), Verizon (VZ), and AT&T (ATT), making it one of the busiest weeks for quarterly reports on Wall Street.
On the economic front, the first estimate of fourth-quarter economic growth is anticipated on Thursday.
Simultaneously, the release of the Personal Consumer Expenditures (PCE) Index, the Fed’s preferred measure of inflation, is scheduled for Friday.
All this unfolds against the backdrop of stock markets trading at or near all-time highs.
The S&P 500 closed at 4,839 points on Friday, marking a fresh record high. Similarly, the Dow Jones Industrial Average reached a new closing peak of 37,863 points.
The Nasdaq Composite surged by 1.7% on Friday, making it a winner in the tech sector. All three major indices are currently in positive territory for January.
Stocks’ ascent to new highs came as consumer sentiment data from the University of Michigan revealed that consumers’ confidence in the economy is at its highest since July 2021.
The positive sentiment among consumers aligns with an increasingly optimistic outlook from Wall Street economists, as January continues to surprise with better-than-expected data.
Recent figures indicate that retail sales in December ended the year on a stronger note than previously feared.
Furthermore, despite headlines of layoffs across various sectors, the actual data for unemployment benefit claims reached its lowest weekly level since September 2022.
This resilient data has led analysts to predict that the U.S. economy grew at an annualised rate of 2% in the fourth quarter, in anticipation of the preliminary Gross Domestic Product release set for Thursday.
The experts at Oxford Economics are growing more confident that the economic expansion will persist into the year ahead. They point to a robust labor market, a slowdown in inflation, and looser financial conditions due to an expected pivot by the Fed toward rate cuts. These factors have reduced the odds of a recession in 2024 to less than 50%, according to Oxford Economics’ Matthew Martin and Ryan Sweet.
While economic growth remains a focus, the hot debate on Wall Street centers around the timing of potential interest rate cuts. As of Friday afternoon, investors assigned a 49% probability of a rate cut in March, a significant shift from the 81% likelihood just one week earlier.
Many economists believe that the path of inflation will be a key determinant of when the Fed decides to implement its first rate cut. Goldman Sachs’ chief economist, Jan Hatzius, predicts that the initial cut will occur in March.
Hatzius explains, “The driver of rate cuts in our forecast, and I would say in what Chair Powell said in the December press conference, is that inflation is coming back down to the target.
If inflation comes back down to the target, there will very likely also be rate cuts because the 5.37% federal funds rate is going to just seem very, very high relative to an economy that’s producing a 2% inflation rate.”
An update on the inflation situation is expected on Friday with the release of the PCE index for December. Economists anticipate that the annual “core” PCE, which excludes volatile categories like food and energy, will have reached 3% in December, with a monthly “core” PCE of 0.2%.
The Fed’s confidence in the trajectory of inflation is likely to increase based on the findings of this report, according to Bank of America US economist Michael Gapen, who also foresees a rate cut in March.
With the Federal Reserve in a blackout period ahead of its next meeting on January 30, earnings reports are expected to play a crucial role in shaping stock market sentiment in the upcoming week.
Brad Banducci quits as Woolworths Australia CEO after TV blow-up
Woolworths CEO Brad Banducci has revealed his decision to step down from his position, with Amanda Bardwell, head of loyalty and e-commerce, slated to succeed him as chief executive in September.
Bardwell’s appointment marks a historic moment as she becomes the first woman to lead the company in its nearly 100-year history.
Banducci’s departure comes at a critical juncture for Woolworths and its competitor, Coles, as they brace for an upcoming Senate inquiry led by the Greens.
The inquiry, scheduled for next month, is expected to scrutinise higher grocery costs, which Canberra has blamed for inflating supermarket profit margins at the expense of consumers.
This is what happened when Four Corners asked Woolworths CEO Brad Banducci about the lack of competition in the Australian grocery market.
— ABC News (@abcnews) February 19, 2024
In addition to the Senate inquiry, Labor has urged the competition regulator to investigate the supermarkets, with Prime Minister Anthony Albanese suggesting potential abuse of market power by the retailers.
Woolworths chairman Scott Perkins clarified that Banducci’s succession timeline was not accelerated in response to the scrutiny faced by the supermarket industry.
Perkins stated that interviews with potential candidates for the CEO position had been ongoing since the latter half of the previous year.
“There has been an ongoing dialogue with Brad,” Perkins told media. “There was no change to the timetable, no expedition at all.”
Importance of authenticity
Banducci acknowledged that he had considered delaying his departure but ultimately decided against it, citing the importance of authenticity. Despite the challenges facing the industry, he expressed confidence in Bardwell’s ability to lead Woolworths into the future.
Analysts reacted to the news with a mix of surprise and caution.
In financial terms, Woolworths’ food retail division reported a 5.2 percent increase in sales, or 6.6 percent excluding tobacco.
However, the company noted a moderation in prices, with average increases of 1.3 percent in the last three months of 2023.
Despite this, margins continued to improve, and earnings for the division rose by 8.2 percent.
Walmart reports holiday sales as shoppers seek better value
Walmart disclosed its fourth-quarter earnings showcasing a surge in sales during the holiday season, offering early insights into consumer spending trends amid a crucial period.
Despite a challenging economic climate, Walmart reported a 4 percent increase in comparable store sales for the three months ending in late January compared to the previous year.
The number of transactions also saw a notable uptick, rising by 4.3 percent. However, there was a slight decline of 0.3 percent in the average ticket price, indicating a tendency among shoppers to spend marginally less during their shopping trips.
The retail behemoth witnessed a significant boost in its online sales, with a 17 percent increase in the U.S. market and a remarkable 23 percent surge globally, surpassing the $100 billion mark. Walmart’s Chief Financial Officer, John David Rainey, attributed this growth partly to cost-saving measures in their e-commerce operations and the rising adoption of Walmart’s delivery services.
While the e-commerce sector saw substantial gains, there was a noted decrease in discretionary purchases such as electronics, as consumers prioritized essential items amidst economic uncertainties.
Walmart’s emphasis on value and affordability played a pivotal role in driving sales, particularly in its grocery segment.
The company’s CEO, Doug McMillon, highlighted Walmart’s commitment to offering competitive prices, leveraging its substantial grocery business.
In a strategic move to enhance its offerings, Walmart announced the acquisition of television manufacturer Vizio in a deal worth $2.3 billion, further expanding its Walmart Connect advertising and media business.
Millions of Australians are struggling with credit card repayments
Recent research has revealed a concerning trend: a significant number of Australians are falling behind on their credit card repayments, highlighting the financial strain faced by many households.
According to Finder’s Credit Card Report 2024, approximately 13% of Australian credit card holders, equivalent to nearly 1.8 million individuals, have missed at least one repayment in the past three months.
Of this group, 8% have fallen behind by 30 days, while 4% have missed payments by 60 days.
Alarmingly, 2% of cardholders have delayed repayments by more than 60 days.
Amy Bradney-George, a credit card expert at Finder, expressed concern over the prevalent misuse of credit cards, attributing it partly to the escalating cost of living.
Bradney-George warned that missing a credit card payment often incurs late fees and interest charges, exacerbating financial burdens for individuals.
Bradney-George emphasised the detrimental impact of late payments on credit scores.
She highlighted that a missed payment can be recorded on a credit file within just 14 days, potentially affecting an individual’s ability to secure loans or new credit cards in the future.
With details of late payments lingering on credit reports for up to two years, the consequences could be long-lasting.
Currently, there are over 13 million credit cards in circulation across Australia, accumulating a national debt of $18.1 billion subject to interest charges.
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