January’s market rally faces a major test in the week ahead from multiple major events, the most important of which could be the Federal Reserve’s interest rate announcement and press conference. The Fed’s meeting Tuesday and Wednesday comes amid a flood of corporate earnings reports, with about 20% of the S & P 500 reporting that week. The most important day for earnings is Thursday, when Apple , Alphabet and Amazon report after the bell. There is also important economic data with the employment cost index out on Tuesday and Friday’s January jobs report. Both will be watched for signs of how much the central bank has cooled the labor market with its rate hiking. That could provide some rough guidance as to how much more the Fed will seek to raise rates. “The markets are at an inflection point,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. “I think it’s going to be a critical week. We’re still on the defensive, but there’s a lot of important data points that could shift this market.” Stocks have rallied since the start of the year, with the most beaten-down names outperforming. Two big loser sectors in 2022, tech and communications services, have led the market higher and are on track for double-digit gains this month. The Nasdaq Composite was up 11% for the month as of Friday afternoon, well ahead of the 6.5% gain in the S & P 500. Traders have been watching the S & P 500 edge closer to the key threshold of 4,100 , its high from December. The index closed at 4,070 Friday, with a 2.5% gain for the week. .SPX 1Y line s and p “We’re at the top end of this trend line. We’re either going to break out in a convincing way, or we’re going to roll back over,” said Lerner. “We’re going to get what this market cares about most — the Fed and earnings.” Earnings so far are beating expectations at about a 68% pace, according to Refinitiv, but some of the guidance has been troubling. “For every great report, American Express , Chevron, there’s a company that’s getting punched in the nose, like Intel, ” said Art Hogan, chief market strategist at B. Riley Financial. He said Apple, the stock with the largest market cap, has the potential to turn the market one way or other. “You’ve got a company that sold off precipitously in the beginning of the year to $125, and now it’s closer to $150. It’s not priced for perfection, but it’s priced for better news, a beat and a raise,” said Hogan. “If there’s one company that has the potential to upset the apple cart, it’s that one — pun intended.” AAPL 1Y line apple Apple is also important because of the signals it can send about the strength of the consumer, supply chains and China’s reopening. Fed ahead The Federal Reserve is widely expected to raise interest rates by a quarter point Wednesday afternoon, though it is not expected to make other changes in its outlook or forecasts. The Fed has raised interest rates seven times since last March, and its fed funds target rate range is now 4.25% to 4.5%. “At this point in time, they still have to double down,” said Diane Swonk, chief economist at KPMG. “The Fed is in the uncomfortable position of holding on to its hawkishness even if internally they debate what is the further restrictive territory, how far they go.” Swonk said Fed Chair Jerome Powell is unlikely to speak definitively about slowing down rate hikes, though the markets are still expecting policymakers to stop soon and even cut rates by year-end. “For now, we’ve moved into restrictive territory,” said Swonk. “The risk that they fear is a repeat of 2021 … where they were head-faked and all of a sudden inflation started picking up again.” She expects the internal debate to heat up in March about how much further the central bank will go with its hikes. By then, it should have more insight into whether inflation is really cooling and whether the jobs market is weakening. The Fed forecasts a jump in the unemployment rate which could cool both the economy and inflation. “They can’t signal they’re backing down unless we get a more definitive move in inflation, going rapidly lower,” said Swonk. “The jobs data is important, ECI [employment costs] is important. … The consumer weakened in the fourth quarter. The downward revision in consumer spending, that set the stage for weaker first-quarter growth.” Swonk expects slower job growth for January, but she said the employment report could still show about 200,000 jobs created because of labor hoarding by companies that had a tough time finding workers. “The jobs report is in the precarious position of needing to be worse,” said Hogan. He said that though the payrolls data comes after the Fed meeting, the market will be watching for signs of a weaker labor market and a chance for the central bank to start positioning to end its hiking cycle. Oil drill A committee of OPEC+ ministers meets Wednesday, but the group is unlikely to recommend action on production levels, after OPEC+ announced a 2 million barrel a day cut last fall. OPEC+ is made up of OPEC, Russia and other non-OPEC producers. “I don’t think they’re going to do anything. They’re going to say they’re monitoring the situation,” said John Kilduff, partner with Again Capital. He said what goes on behind the scenes may be more interesting. “If there’s going be something coming out of the group, it’s going to be consternation about Russia and all the cheap oil they’re selling to India and China,” he said. But he doubts there will be any public comments on the topic. The European Union has cut off purchases of seaborne Russian oil, but it is still finding ways onto the global market at reduced prices. Oil prices have been rising recently in part on expectations China’s reopening will boost demand. But West Texas Intermediate crude futures are down just under 1% since the start of the year and settled at $79.68 per barrel Friday. Week ahead calendar Monday Earnings : Whirlpool , Helmerich & Payne, Franklin Resources, Ryanair, NXP Semiconductors , SoFi, Canon, Samsung Tuesday Earnings: Caterpillar , Exxon Mobil, Amgen, General Motors , UPS, McDonald’s, Pfizer, PulteGroup, Electronic Arts, Advanced Micro Devices, Snap , Marathon Petroleum, International Paper , Moody’s, Corning, Manpower, Sysco, Stryker, Boston Properties, Oshkosh, Polaris, Spotify, Edwards Lifesciences, Canadian Pacific Railway, Match Group, Chubb, Mondelez, Owens-Illinois, MSCI, Phillips 66, Hawaiian Holdings, Western Digital FOMC meeting begins 8:30 a.m. Employment cost index (Q4) 9:00 a.m. S & P/Case-Shiller home prices (November) 9:00 a.m. FHFA home prices (November) 9:45 a.m. Chicago PMI (January) 10:00 a.m. Consumer confidence (January) 10:00 a.m. Housing vacancies (Q4) Wednesday Earnings: Meta Platforms , Novartis, T-Mobile US, Altria, GlaxoSmithKline, Peloton Interactive, Boston Scientific, Scotts Miracle-Gro , Waste Management, Netgear, Aflac , McKesson, TrueBlue, MetLife, Allstate, SLM, AmerisourceBergen, Brinker, Otis Worldwide, Thermo Fisher , Aflac, Qorvo, Johnson Controls Vehicle sales (January) 8:15 a.m. ADP employment (January) 9:45 a.m. S & P Global manufacturing PMI (January final) 10:00 a.m. ISM manufacturing (January) 10:00 a.m. Construction spending 10:00 a.m. JOLTS (December) 2:00 p.m. FOMC statement 2:30 p.m. Fed Chair Jerome Powell briefing Thursday Earnings: Apple, Alphabet, Amazon, Ford, Eli Lilly, Merck , Bristol Myers Squibb, ConocoPhillips, Intercontinental Exchange, Qualcomm, Starbucks, Gilead Sciences, Clorox, Harley-Davidson, Honeywell, Estee Lauder, Skechers, U.S. Steel, Post Holdings, Cirrus Logic, Hartford Financial , Boyd Gaming, Shell, Air Products, Ball Corp., Tradeweb, Illinois Tool Works, Synaptics, Beazer Homes, Parker Hannifin, Canada Goose, Quest Diagnostics, Stanley Black & Decker, Lazard, Cardinal Health , Deckers Outdoor, GoPro 8:30 a.m. Initial jobless claims 8:30 a.m. Productivity and costs 10:00 a.m. Factory orders Friday Earnings: Cigna, Aon , Church & Dwight, CBOE Global Markets, Regeneron Pharma, Sanofi, Zimmer Biomet, LyondellBasell 8:30 a.m. Employment (January) 9:45 a.m. S & P Global services PMI (January final) 10:00 a.m. ISM services (January)
