US Stock Market: Week gone by, what to expect this week?

The markets in recent months have been a highly macro-driven one with large swings in the major indices dictated by factors ranging from inflation, interest rates, and geopolitical events.

US Stock Market: Week gone by, what to expect this week?
Looking ahead at the next week, several key pieces of economic data would be released.

By Ramkumar Venkatramani

The S&P 500 index ended the week at 4145.19, up 0.36% from the last week. The technology-dominated Nasdaq Composite index was up 2.15% during the same time, ending the week at 12657.55.

This is the third consecutive week markets are closing higher. The only exception was the 30-stock Dow Jones Industrial Average which was down 0.13%, ending the week at 32803.47.

The markets in recent months have been a highly macro-driven one with large swings in the major indices dictated by factors ranging from inflation, interest rates, and geopolitical events.

Last week too was no different, witnessing such factors. A surprisingly strong job number, that showed the US hired a lot more employees than anticipated drove the markets down on Friday. The job numbers usually have a positive impact on the markets, as in indicating a strong underlying economy.

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However, the market has recently rallied on a belief that the US Fed might reduce the pace of interest rate hikes with some even hoping the rates would be cut sometime in 2023. The strong jobs data casts doubts on those expectations. With the economy strong, and jobs and wages growing, the Fed has no compelling reason to pause its hawkish policy.

This being earnings season, top-line and bottom-line numbers have also impacted stock moves. Despite global macro headwinds in the form of higher inflation, tightening liquidity and supply-chain constraints, the earnings season has been surprisingly strong.

As of last week, almost 3/4th of the companies that have reported have beaten EPS estimates, with several bettering revenue estimates as well. Nonetheless, the analyst community has reduced the estimates for the next quarter and ahead. Even company guidance has been a tad conservative in many cases. The next quarter reports would be interesting to watch to see how much strength is left in corporate earnings.

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Looking ahead to the next week, several key pieces of economic data would be released. These include 3-year inflation expectations from the NY Fed, small-business index data, and more importantly, CPI and core CPI data during the middle of the week. The markets would eagerly await the CPI data to gauge the Fed’s potential action.

Later next week we would see unemployment data and the University of Michigan’s preliminary sentiment index. This last piece is widely regarded as a gauge of consumer confidence and is a leading indicator of economic activity. It appears we are in for another interesting week in the markets with probably higher volatility.

(The author is Lead – Investment Advisory, Kristal.AI.)

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