What you need to know this week

By | February 19, 2024

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Stocks nearly recovered after a warmer-than-expected inflation report sent the market lower on Tuesday.

The S&P 500 (^GSPC) closed 0.4% lower this week, but closed at a new record on Thursday. The Dow Jones Industrial Average (^DJI) fell 0.1% this week. Meanwhile, the Nasdaq Composite (^IXIC) fell 1.3%.

The markets are closed Monday for the Presidents Day holiday.

With few economic events expected on the calendar that will seriously impact investor sentiment, AI darling Nvidia’s earnings report on Wednesday after the market close will take center stage in the coming week. Reports from Walmart (WMT), Home Depot (HD), Moderna (MRNA) and Warner Bros. Discovery (WBD) will also be central throughout the week.

A hiccup in the economic story

The growing economic consensus has created a bump in the road.

In recent months, a string of stronger-than-expected data has led many investors to embrace a possible soft landing, with inflation falling to the Federal Reserve’s 2% target without triggering a serious economic downturn.

Recent data over the past week has cast doubt on that narrative. Both the consumer price index (CPI) and the producer price index (PPI) showed that prices rose more than economists expected last month. And January’s retail sales report showed sales fell more than economists expected. In other words: neither inflation nor consumer spending improved.

“While the January data is often noisy, the inflation data suggests that disinflation moved back two notches in January,” U.S. economists Stephen Juneau and Michael Gapen of Bank of America wrote in a note to clients on Friday.

Juneau and Gapen wrote that January inflation data justify the Fed’s wait-and-see approach to cutting rates and that they agree with the new market consensus that the first rate cut will come in June rather than March or May.

Read more: What the Fed’s interest rate decision means for bank accounts, CDs, loans and credit cards

This marks a sharp shift in investor sentiment on the Fed’s cuts. Investors now estimate a roughly 35% chance that the first cut will occur in May, according to the CME FedWatch Tool. A month ago, investors had estimated a 97% chance that the first cut would occur by the end of the May meeting.

Nvidia is central

Perhaps the most important earnings report of the fourth-quarter reporting season will be on tape after the closing bell on Wednesday. The chipmaker’s lead in AI has propelled the company to the third-highest market capitalization in the world, behind Apple (AAPL) and Microsoft (MSFT).

Since an explosive earnings report last May, when Nvidia beat Wall Street estimates for revenue guidance by more than 50%, the company has consistently exceeded analyst expectations. And many on Wall Street expect another blowout quarter. Consensus expects Nvidia to report earnings per share of $4.60 and revenue of $20.36 billion. That would mean year-on-year growth of 422% and 236% respectively.

For a stock that’s already up nearly 50% this year, the risk for investors lies in the fact that the company’s streak of solid gains is finally coming to an end. And given Nvidia’s outsized weighting in the major indexes and its value in the AI ​​story, this could also be a risk for the broader market.

Interactive Brokers chief strategist Steve Sosnick told Yahoo Finance’s Madison Mills that the report could be “very tough” for the markets.

“If Nvidia misses or simply fails to hit a home run… it could have a gravitational effect on the entire market,” Sosnick said.

The market story has not yet changed

Nvidia’s earnings are a reminder that while the recent set of economic data has posed some challenges to the soft landing narrative, the overall market narrative has changed little in recent weeks. Stocks have suffered some unsatisfactory news, with the S&P 500 hitting new highs despite a shift in investor expectations from the rate-cutting cycle that started in March to the cycle that started in June.

AI stocks are still soaring as enthusiasm for the new technology remains high (see the 150% one-month gain in Super Micro Computer (SMCI) for the latest example). And a look beneath the surface shows that the fundamental story for equities has also held up.

The latest data from FactSet, released Friday, shows that with nearly 80% of S&P 500 companies having finished reporting earnings, the index is on track for fourth-quarter earnings growth of 3.2% . That number has steadily increased in recent weeks as more companies report it.

As we’ve noted, gains have also been seen across sectors, which many believe could lead to a broadening of market returns beyond just a few top tech stocks later this year. Recent research by Truist co-CIO Keith Lerner has since shown this After the market’s recent low at the end of October, there has been a broadening.

“The market rally we have seen since October is broader than many investors think,” Lerner wrote in a note to clients Thursday evening.

This played out in the most recent trading week with the equally-weighted S&P 500 (RSP) and the small-cap Russell 2000 Index (^RUT) – two indexes often referenced by market strategists who believe the stock market rally will extend beyond de There are few stocks that are currently leading the way. Both rose more than 0.7%. The S&P 500 fell about 0.4%.

These signs of a market shift come as Neil Dutta, head of economics at Renaissance Macro, noted several times this week that the market narrative of a soft landing is still in play. And that’s largely because the macro conversation hasn’t changed, Dutta added.

“We are still talking about an economy that is growing quite well and a central bank that is considering when to cut rates,” Dutta wrote. “A policy recalibration is still likely this year.”

SANTA CLARA, CALIFORNIA - FEBRUARY 05: A sign is placed at Nvidia's headquarters on February 5, 2024 in Santa Clara, California.  Nvidia shares hit record highs on Monday after analysts upgraded their outlook for the company.  (Photo by Justin Sullivan/Getty Images)SANTA CLARA, CALIFORNIA - FEBRUARY 05: A sign is placed at Nvidia's headquarters on February 5, 2024 in Santa Clara, California.  Nvidia shares hit record highs on Monday after analysts upgraded their outlook for the company.  (Photo by Justin Sullivan/Getty Images)

SANTA CLARA, CALIFORNIA – FEBRUARY 05: A sign is placed at Nvidia’s headquarters on February 5, 2024 in Santa Clara, California. Nvidia shares hit record highs on Monday after analysts upgraded their outlook for the company. (Photo by Justin Sullivan/Getty Images) (Justin Sullivan via Getty Images)

Weekly calendar

Monday

The markets are closed for the Presidents Day holiday.

Tuesday

Earnings: Barclays (BCS), Caesars Entertainment (CZR), Diamondback Energy (FANG), Home Depot (HD), KBR (KBR), Medtronic (MDT), Palo Alto Networks (PANW), Teladoc Health (TDOC), Toll Brothers (TOL), Walmart (WMT)

Economic News: Philadelphia Fed Non-Manufacturing Activity, February (-3.7 prior); Leading index, January (-0.3% expected, -0.1% earlier)

Wednesday

Earnings: Nvidia (NVDA), DutchBros (BROS), Etsy (ETSY), HSBC (HSBC), Lucid (LCID), Marathon Oil (MRO), Rivian (RIVN), Suncor Energy (SU), Wingstop (WING)

Economic News: MBA Mortgage Applications, February 16 (previously -2.3%); FOMC meeting minutes from January 31 meeting

Thursday

Earnings: Booking Holdings (BKNG), Block (SQ), Carvana (CVNA), Intuit (INTU), LiveNation (LYV), Moderna (MRNA), Nikola (NKLA), Wayfair (W)

Economic News: Chicago Fed Nat Activity Index, January (-0.15 prior); Initial unemployment claims, week ending February 17 (previously 212,000); S&P Global US manufacturing PMI, preliminary February (50.1 expected, 50.7 earlier); S&P Global US services PMI, preliminary February (52.0 expected, 52.5 previously); S&P Global US composite PMI, preliminary February (52.0); Existing home sales month-on-month, January (5.0% expected, -1% earlier)

Friday

Revenue: Lamar (LAMR), Warner Bros. Discovery (WBD)

No significant economic news.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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