Ameriprise Financial Inc.
01/17/2023 | Press release | Distributed by Public on 01/17/2023 12:47
Fourth Quarter Earnings Season Takes Center Stage for Investors
Investors focus on corporate fundamentals and outlooks as 109 S&P 500 companies report results this week and next
Major U.S. averages rose for a second-straight week, with the S&P 500® Index pushing back within a whisper of the 4,000 level by Friday's close. In addition, the NASDAQ Composite floated past the 11,000 level by the end of last week, with Growth slightly topping Value. The S&P 500 rose +2.7% during the week, while the NASDAQ jumped +4.8%. Both stock indexes closed the week at their highest levels in a month. The Dow Jones Industrials Average also added to its gains for the year, increasing by +2.0% last week. The S&P 500 is up +4.2% month-to-date, while the Dow is higher by +3.5%. Each is on pace for its best January since 2019. For the NASDAQ, the tech-heavy index is higher by +5.9% this month, also on track for its best start since 2019.
Consumer Discretionary (+5.8%), Information Technology (+4.6%), and Real Estate (+4.3%) outperformed the S&P 500 last week, with Consumer Staples (-1.5%) and Health Care (-0.2%) the only two S&P 500 sectors to finish in the red. The 2-year U.S. Treasury yield ended at 4.21%, and the 10-year Treasury yield closed at 3.50%. Notably, the 10-year yield (which is more sensitive to longer-term economic growth and inflation expectations) is lower by 38 basis points since the end of last year. In our view, stabilizing bond prices early in the new year and receding inflation anxiety as of late have helped yields come down from their recent highs. As a result, stock prices have caught a bid in early 2023.
The U.S. Dollar Index continued its slide lower, falling 1.7% last week. Since its late September high, the Dollar Index is lower by roughly 10.5%. West Texas Intermediate (WTI) crude jumped +8.3% last week, closing at $79.90 per barrel. A weaker U.S. dollar, China's push to reopen its economy, and building optimism that a slowdown or recession in the U.S. and Europe this year could prove mild, have pushed crude prices higher in January. Gold finished the week higher by +2.8%, ending at $1923.30 per ounce.
Easing inflation pressures and beginning of Q4 earnings season pushed stocks higher last week
Inflation and the start of the fourth quarter earnings season were the principal drivers in the market last week, and each provided a few catalysts to help push stock prices higher. On the inflation front, the December headline Consumer Price Index (CPI) slipped 0.1% month-over-month, in line with expectations and below November's pace of +0.1%. On a year-over-year basis, headline CPI rose +6.5% in December, as expected, and showed the smallest 12-month rise since October 2021. December core CPI (ex-food and energy) rose +0.3% month-over-month and was higher by +5.7% year-over-year. Both measures came in as expected, with the year-over-year rate moderating from November's pace of +6.0%. Bottom line: Lower gasoline and food prices helped cool headline inflation pressures in December while easing inflation across used-vehicle prices (the sixth consecutive monthly decline), as well as services helped offset upward price pressures seen in shelter. In our view, last week's consumer inflation report is unlikely to change the calculus for the Federal Reserve. However, the market widely believes that the confirmation of falling inflation pressures provides the opportunity for the Fed to further slow the pace of rate hikes as soon as its next meeting at the end of the month. The CME FedWatch Tool currently shows a roughly 91% chance the Fed raises its fed funds target rate by 25 basis points to 4.50% - 4.75% on February 1. That would mark a step down from the 50-basis point move higher in December and the 75-basis point hikes in each of the four preceding meetings.
Also helping add color to the falling inflation narrative was the rise in the Michigan Consumer Sentiment Index, particularly the decline in the survey's one-year-ahead inflation expectations. January's preliminary read showed consumer sentiment rose for the second straight month and hit its highest level in nine months. Notably, one-year ahead inflation expectations fell to 4.0%, the lowest print since June 2021, and marked the fourth straight monthly decline. In addition, consumers' current assessment of personal finances rose to an eight-month high as easing inflation pressures and higher incomes helped improve individual assessments of financial stability. Bottom line: With inflation showing signs of persistent moderation, particularly in areas of high visibility (i.e., energy and food), consumers are beginning to feel better about their own personal finances as well as the path for inflation.
From a Fed perspective, data showing continued price moderation in the economy is likely just as important as sentiment data showing consumers believe inflation pressures will continue to moderate in the future. Last week, the Fed received good news on both fronts. And while by no means does last week's inflation data mean its mission accomplished for Fed officials, investors recognized the improvement and pushed stock prices higher. Finally, on the sentiment front, bullish sentiment in the weekly American Association of Individual Investors (AAII) Survey increased modestly. In contrast, bearish sentiment among retail investors has continued to fall sharply over the last few weeks. With stronger stock performance in January, retail investors appear to be reducing some of their negative bias on future stock returns, which has added a slight tailwind for equities.
As earnings season continues, investors are looking for signs of strength
Looking ahead, the fourth quarter earnings season will take center stage over the next few weeks. High inflation and slowing economic activity experienced in the September through December period lowered Q4'22 S&P 500 profit estimates materially. From the end of Q3 to the end of December, Q4'22 S&P 500 earnings per share (EPS) estimates fell 6.5%. Thus, we believe analysts set the bar relatively low for S&P 500 companies, with aggregate Q4 EPS expected to decline for the first time since the pandemic. However, with analysts putting in a lower bar for results, investors are hoping companies can hurdle over expectations over the coming weeks and place a needed fundamental tailwind under stock prices.
Last week, the big banks kicked off the earnings season, which included earnings per share and revenue beats from a few major institutions. However, building loan loss provisions and calls for a mild recession in 2023 dampened some of the better-than-expected trends in trading results, particularly across fixed income. Positive takeaways from early results out of Financials include rising deposits, credit normalization dynamics, and still solid credit quality among consumers and businesses. With roughly 6.0% of reports complete, blended Q4'22 S&P 500 EPS is down 4.3% year-over-year on sales growth of +3.8%. Over the next two weeks, 109 S&P 500 companies are scheduled to report results, which will likely keep investors' focus on corporate fundamentals and outlooks.
From our vantage point, the items that could influence stock prices over the coming weeks and related to the earnings season include:
2023 is off to a more optimistic start; economic data expected this week will detail the state of the economy
Moderating labor growth and wage inflation, a slowdown in the pace of Fed tightening, easing financial conditions, a weakening U.S. dollar, lower energy prices, China reopening, and easing supply constraints have market participants in a better mood at the start of the year. Disinflation traction across the economy and cost-cutting measures from corporations to protect profit margins offer positive factors heading into the fourth quarter earnings season. In addition, the possibility of a shallower slowdown in the U.S. and possibly Europe are other factors helping investors shift away from the market's more pessimistic narratives. In addition to the market's focus on earnings this week, December retail sales (Wednesday) should show lower gasoline prices weighed on results. The December Producer Price Index (Wednesday) and December housing data later in the week will likely be other areas of focus for investors as the week wears on.
Important Disclosures
Sources: FactSet and Bloomberg. FactSet and Bloomberg are independent investment research companies that compile and provide financial data and analytics to firms and investment professionals such as Ameriprise Financial and its analysts. They are not affiliated with Ameriprise Financial, Inc.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
Stock investments involve risk, including loss of principal. High-quality stocks may be appropriate for some investment strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with investing in stocks, as they can lose value.
The fund's investments may not keep pace with inflation, which may result in losses.
A rise in interest rates may result in a price decline of fixed-income instruments held by the fund, negatively impacting its performance and NAV. Falling rates may result in the fund investing in lower yielding debt instruments, lowering the fund's income and yield. These risks may be heightened for longer maturity and duration securities.
There are risks associated with fixed-income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer term securities.
Past performance is not a guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
Growth securities, at times, may not perform as well as value securities or the stock market in general and may be out of favor with investors.
Value securities may be unprofitable if the market fails to recognize their intrinsic worth or the portfolio manager misgauged that worth.
The Standard & Poor's 500 Index (S&P 500® Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices but excludes brokerage commissions or other fees. It is not possible to invest directly in an index.
The NASDAQ composite index measures all NASDAQ domestic and international based common type stocks listed on the Nasdaq Stock Market.
The Dow Jones Industrial Average (DJIA) is an index containing stocks of 30 Large-Cap corporations in the United States. The index is owned and maintained by Dow Jones & Company.
The U.S. Dollar Index (DXY) measures the dollar's value against a trade-weighted basket of six major currencies.
West Texas Intermediate (WTI) is a grade of crude oil commonly used as a benchmark for oil prices. WTI is a light grade with low density and sulfur content.
The American Association of Individual Investors (AAII) Survey is a weekly survey of stock market sentiment amongst individual investors in the US. The survey is widely used as a contrarian indicator. The American Association of Individual Investors is a nonprofit organization representing individual investors.
The Consumer Price Index (CPI) measures change in consumer prices as determined by the US Bureau of Labor Statistics.
The CME FedWatch Tool analyzes the probability of FOMC rate moves for upcoming meetings. Using 30-Day Fed Fund futures pricing data, which have long been relied upon to express the market's views on the likelihood of changes in U.S. monetary policy, the tool visualizes both current and historical probabilities of various FOMC rate change outcomes for a given meeting date. The tool also shows the Fed's "Dot Plot," which reflects FOMC members' expectations for the Fed target rate over time.
The Michigan Consumer Sentiment Index (MCSI) is a monthly survey of consumer confidence levels in the United States. It is a statistical measurement of the overall health of the economy as determined by consumer opinion. It takes into account people's feelings toward their current financial health, the health of the economy in the short-term, and the prospects for longer-term economic growth, and is widely considered to be a useful economic indicator.
Definitions of individual indices and sectors mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section.
Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.
Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.
Consumer Discretionary (+5.8%), Information Technology (+4.6%), and Real Estate (+4.3%) outperformed the S&P 500 last week, with Consumer Staples (-1.5%) and Health Care (-0.2%) the only two S&P 500 sectors to finish in the red. The 2-year U.S. Treasury yield ended at 4.21%, and the 10-year Treasury yield closed at 3.50%. Notably, the 10-year yield (which is more sensitive to longer-term economic growth and inflation expectations) is lower by 38 basis points since the end of last year. In our view, stabilizing bond prices early in the new year and receding inflation anxiety as of late have helped yields come down from their recent highs. As a result, stock prices have caught a bid in early 2023.
The U.S. Dollar Index continued its slide lower, falling 1.7% last week. Since its late September high, the Dollar Index is lower by roughly 10.5%. West Texas Intermediate (WTI) crude jumped +8.3% last week, closing at $79.90 per barrel. A weaker U.S. dollar, China's push to reopen its economy, and building optimism that a slowdown or recession in the U.S. and Europe this year could prove mild, have pushed crude prices higher in January. Gold finished the week higher by +2.8%, ending at $1923.30 per ounce.
Easing inflation pressures and beginning of Q4 earnings season pushed stocks higher last week
Inflation and the start of the fourth quarter earnings season were the principal drivers in the market last week, and each provided a few catalysts to help push stock prices higher. On the inflation front, the December headline Consumer Price Index (CPI) slipped 0.1% month-over-month, in line with expectations and below November's pace of +0.1%. On a year-over-year basis, headline CPI rose +6.5% in December, as expected, and showed the smallest 12-month rise since October 2021. December core CPI (ex-food and energy) rose +0.3% month-over-month and was higher by +5.7% year-over-year. Both measures came in as expected, with the year-over-year rate moderating from November's pace of +6.0%. Bottom line: Lower gasoline and food prices helped cool headline inflation pressures in December while easing inflation across used-vehicle prices (the sixth consecutive monthly decline), as well as services helped offset upward price pressures seen in shelter. In our view, last week's consumer inflation report is unlikely to change the calculus for the Federal Reserve. However, the market widely believes that the confirmation of falling inflation pressures provides the opportunity for the Fed to further slow the pace of rate hikes as soon as its next meeting at the end of the month. The CME FedWatch Tool currently shows a roughly 91% chance the Fed raises its fed funds target rate by 25 basis points to 4.50% - 4.75% on February 1. That would mark a step down from the 50-basis point move higher in December and the 75-basis point hikes in each of the four preceding meetings.
Also helping add color to the falling inflation narrative was the rise in the Michigan Consumer Sentiment Index, particularly the decline in the survey's one-year-ahead inflation expectations. January's preliminary read showed consumer sentiment rose for the second straight month and hit its highest level in nine months. Notably, one-year ahead inflation expectations fell to 4.0%, the lowest print since June 2021, and marked the fourth straight monthly decline. In addition, consumers' current assessment of personal finances rose to an eight-month high as easing inflation pressures and higher incomes helped improve individual assessments of financial stability. Bottom line: With inflation showing signs of persistent moderation, particularly in areas of high visibility (i.e., energy and food), consumers are beginning to feel better about their own personal finances as well as the path for inflation.
From a Fed perspective, data showing continued price moderation in the economy is likely just as important as sentiment data showing consumers believe inflation pressures will continue to moderate in the future. Last week, the Fed received good news on both fronts. And while by no means does last week's inflation data mean its mission accomplished for Fed officials, investors recognized the improvement and pushed stock prices higher. Finally, on the sentiment front, bullish sentiment in the weekly American Association of Individual Investors (AAII) Survey increased modestly. In contrast, bearish sentiment among retail investors has continued to fall sharply over the last few weeks. With stronger stock performance in January, retail investors appear to be reducing some of their negative bias on future stock returns, which has added a slight tailwind for equities.
As earnings season continues, investors are looking for signs of strength
Looking ahead, the fourth quarter earnings season will take center stage over the next few weeks. High inflation and slowing economic activity experienced in the September through December period lowered Q4'22 S&P 500 profit estimates materially. From the end of Q3 to the end of December, Q4'22 S&P 500 earnings per share (EPS) estimates fell 6.5%. Thus, we believe analysts set the bar relatively low for S&P 500 companies, with aggregate Q4 EPS expected to decline for the first time since the pandemic. However, with analysts putting in a lower bar for results, investors are hoping companies can hurdle over expectations over the coming weeks and place a needed fundamental tailwind under stock prices.
Last week, the big banks kicked off the earnings season, which included earnings per share and revenue beats from a few major institutions. However, building loan loss provisions and calls for a mild recession in 2023 dampened some of the better-than-expected trends in trading results, particularly across fixed income. Positive takeaways from early results out of Financials include rising deposits, credit normalization dynamics, and still solid credit quality among consumers and businesses. With roughly 6.0% of reports complete, blended Q4'22 S&P 500 EPS is down 4.3% year-over-year on sales growth of +3.8%. Over the next two weeks, 109 S&P 500 companies are scheduled to report results, which will likely keep investors' focus on corporate fundamentals and outlooks.
From our vantage point, the items that could influence stock prices over the coming weeks and related to the earnings season include:
- The state of the consumer and anticipated demand levels for this year.
- S&P 500 profit margins have come down versus year-ago levels but remain healthy. Is there a risk of more significant margin pressures ahead? Or is aggregate demand strong enough that companies can maintain their profitability even if growth and activity are slowing? These are the questions investors will likely seek the answers to over the coming weeks.
- Corporate commentary on labor conditions. What companies have to say about hiring, labor inflation, and the current state of their workforce should provide further color on what thus far remains a very tight employment backdrop. Several large companies have already announced layoffs and/or hiring freezes.
2023 is off to a more optimistic start; economic data expected this week will detail the state of the economy
Moderating labor growth and wage inflation, a slowdown in the pace of Fed tightening, easing financial conditions, a weakening U.S. dollar, lower energy prices, China reopening, and easing supply constraints have market participants in a better mood at the start of the year. Disinflation traction across the economy and cost-cutting measures from corporations to protect profit margins offer positive factors heading into the fourth quarter earnings season. In addition, the possibility of a shallower slowdown in the U.S. and possibly Europe are other factors helping investors shift away from the market's more pessimistic narratives. In addition to the market's focus on earnings this week, December retail sales (Wednesday) should show lower gasoline prices weighed on results. The December Producer Price Index (Wednesday) and December housing data later in the week will likely be other areas of focus for investors as the week wears on.
Important Disclosures
Sources: FactSet and Bloomberg. FactSet and Bloomberg are independent investment research companies that compile and provide financial data and analytics to firms and investment professionals such as Ameriprise Financial and its analysts. They are not affiliated with Ameriprise Financial, Inc.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
Stock investments involve risk, including loss of principal. High-quality stocks may be appropriate for some investment strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with investing in stocks, as they can lose value.
The fund's investments may not keep pace with inflation, which may result in losses.
A rise in interest rates may result in a price decline of fixed-income instruments held by the fund, negatively impacting its performance and NAV. Falling rates may result in the fund investing in lower yielding debt instruments, lowering the fund's income and yield. These risks may be heightened for longer maturity and duration securities.
There are risks associated with fixed-income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer term securities.
Past performance is not a guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
Growth securities, at times, may not perform as well as value securities or the stock market in general and may be out of favor with investors.
Value securities may be unprofitable if the market fails to recognize their intrinsic worth or the portfolio manager misgauged that worth.
The Standard & Poor's 500 Index (S&P 500® Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices but excludes brokerage commissions or other fees. It is not possible to invest directly in an index.
The NASDAQ composite index measures all NASDAQ domestic and international based common type stocks listed on the Nasdaq Stock Market.
The Dow Jones Industrial Average (DJIA) is an index containing stocks of 30 Large-Cap corporations in the United States. The index is owned and maintained by Dow Jones & Company.
The U.S. Dollar Index (DXY) measures the dollar's value against a trade-weighted basket of six major currencies.
West Texas Intermediate (WTI) is a grade of crude oil commonly used as a benchmark for oil prices. WTI is a light grade with low density and sulfur content.
The American Association of Individual Investors (AAII) Survey is a weekly survey of stock market sentiment amongst individual investors in the US. The survey is widely used as a contrarian indicator. The American Association of Individual Investors is a nonprofit organization representing individual investors.
The Consumer Price Index (CPI) measures change in consumer prices as determined by the US Bureau of Labor Statistics.
The CME FedWatch Tool analyzes the probability of FOMC rate moves for upcoming meetings. Using 30-Day Fed Fund futures pricing data, which have long been relied upon to express the market's views on the likelihood of changes in U.S. monetary policy, the tool visualizes both current and historical probabilities of various FOMC rate change outcomes for a given meeting date. The tool also shows the Fed's "Dot Plot," which reflects FOMC members' expectations for the Fed target rate over time.
The Michigan Consumer Sentiment Index (MCSI) is a monthly survey of consumer confidence levels in the United States. It is a statistical measurement of the overall health of the economy as determined by consumer opinion. It takes into account people's feelings toward their current financial health, the health of the economy in the short-term, and the prospects for longer-term economic growth, and is widely considered to be a useful economic indicator.
Definitions of individual indices and sectors mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section.
Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.
Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.