The S&P 500 Finally Recovers. Why Earnings, the Fed Could Stall It.

There’s a lot of news coming this week, but don’t count on it providing many catalysts. Earnings so far this quarter have been mediocre. And when results have beaten expectations, stocks have tended to fall afterward.

This week has a lot more in store. Tesla and Netflix report. United and
Alaska Air,
two companies that work closely with
Boeing,
which has had a problem with a door plug falling off an airplane, also give updates. Home builder
D.R. Horton,
oil services firm
Halliburton,
and consumer goods maker
Procter & Gamble
also deliver results. Investors will get insight into the health of the consumer and the economy with such a wide swath of the companies giving updates.

There are also gross domestic product figures for the fourth quarter on Thursday. Economists expect growth to have slowed dramatically from the third quarter. At the same time, headline inflation unexpectedly ticked higher last month, suggesting interest rates might not fall as soon or as quickly as investors had hoped.

The Federal Reserve’s preferred gauge of price growth, the core personal-consumption expenditures index, is due Friday and is expected to creep higher as well. The odds of a Fed rate cut in March have fallen below 50%, according to the CME FedWatch tool.

Put together so-so earnings and higher interest rates and there’s not much for stock investors to cheer about.

That’s more or less been the story since the start of the year. Despite this the S&P 500 nevertheless climbed to a new record. Maybe the momentum can continue regardless.

—Brian Swint

*** Join Barron’s senior managing editor Lauren R. Rublin, deputy editor Ben Levisohn, and Denton Cinquegrana, chief oil analyst at OPIS, a Dow Jones Company, today at noon for a deep dive into the dynamics of the energy market, investment opportunities, and more. Sign up here.

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Tesla’s Earnings to Focus on Demand, Pricing, Musk’s Pay

Tesla,
led by CEO Elon Musk, reports fourth-quarter and full-year 2023 financial results after the markets close on Wednesday. Investors and analysts will focus on electric-vehicle pricing, demand, and profitability. They will also be assessing whether Musk’s demands for more control of the electric-vehicle maker’s stock is justified.

• Tesla is expected to report fourth-quarter profit of 73 cents a share and sales of $25.6 billion, according to FactSet. Profit would be below the $1.19 a share reported in the last quarter of 2022, but revenue would be 5% higher.

• Analysts are focused on the trajectory of Tesla’s profit, after it slashed prices on its vehicles amid industrywide signs of slower-than-expected EV adoption. There are also concerns about a slowdown in China’s economy, where Tesla has stiff competition from
  BYD.

• Musk owns 13% of Tesla stock and stock options representing another 7%. He wants to achieve 25% voting control, or said he could potentially take some of his artificial intelligence and robotics projects outside of Tesla. Another 5% of the stock would amount to $34 billion.

• It isn’t clear if Musk considers his options part of his control. Musk and Tesla didn’t respond to Barron’s questions. Tesla’s board alternatively could create a class of supervoting stock to give Musk, similar to what the
  Ford
  family owns. That would require a shareholder vote, Barron’s reported.

What’s Next: Tesla investors are also curious for more details about a smaller, cheaper vehicle under development that everyone calls Model 2. Musk said in December that production of the vehicle would likely start in Austin, Texas, with a second line in Mexico, where a plant is under construction.

—Janet H. Cho and Al Root

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Netflix Earnings Coming Amid Hopes for Revenue Revival

Netflix
heads into 2024 with hopes that a crackdown on account sharing and a boost in advertising can revitalize revenue growth even if paid subscriber growth slows. It had twice as many subscribers as rival
Walt Disney
at the end of the third quarter, but it has high expectations to meet.

• The streaming company is expected to rack up 8.8 million paid subscribers in the fourth quarter—about the same as the prior period. But its six-month growth, estimated at 17.5 million, hasn’t been achieved since the early pandemic.

• The account-sharing crackdown was just rolling out at the end of the third quarter. That is likely to help fourth-quarter subscriber numbers as people signed up for their own accounts. The effects might not be as strong in 2024, The Wall Street Journal reported.

• Netflix’s revenue is expected to rise 14% this year and 11% next year, compared with the 6% growth estimated for 2023. That suggests Netflix will still be able to get more revenue per user despite a drop in the availability of content after last year’s prolonged writers’ and actors’ strikes.

• Market research firm Luminate said U.S. program premieres across distribution platforms dropped 21% in 2023, the Journal reported. Ampere Analysis said U.S.-produced scripted TV seasons ordered in 2023 fell nearly 37% from a year earlier.

What’s Next: Netflix has yet to clinch a Best Picture Oscar, unlike rivals such as
Amazon
and
Apple.
Its strongest contenders for 2024 are Maestro and May December, but it also faces stiff competition from Universal’s Oppenheimer and Paramount and Apple’s Killers of the Flower Moon.

—Liz Moyer

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New Estimates for GDP Growth, Inflation Data Out This Week

Investors will get a first look at fourth-quarter economic growth and fresh inflation data this week ahead of the Federal Reserve’s Jan. 30-31 decision on interest rates. Consumer spending likely surged last quarter after retail sales bumped higher in December, while government spending likely slowed.

• The Bureau of Economic Analysis will report its first estimate of fourth-quarter 2023 gross domestic product growth on Thursday. Wall Street expects GDP to have increased at a seasonally adjusted annual rate of 2%, after a 4.9% growth rate in the third quarter.

• On Friday, the Bureau of Economic Analysis will release the personal-consumption expenditures price index for December. The Core PCE index excluding volatile food and energy prices, the Fed’s favorite inflation barometer, is forecast to rise 0.2% from November, according to FactSet.

• Also this week, S&P Global will release both its Manufacturing and Services Purchasing Managers’ indexes for January. Economists expect a 47.7 reading for the Manufacturing PMI, and a 51 reading for the Services PMI; both slightly down from December levels.

• Despite the Fed raising interest rates 11 times since spring 2022, the economy has remained resilient. Analysts expect 2023 GDP to be up 2.4% from 2022. Wall Street expects corporate profit margins to rebound through the first half of 2024 through layoffs or other cutbacks.

What’s Next: Treasury Secretary Janet Yellen will deliver a speech to the Chicago Economic Club on Thursday on the state of the U.S. economy and the investments the Biden Administration has made. The speech is aimed at setting the tone for the administration’s economic message in 2024.

—Nicholas Jasinski and Janet H. Cho

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Macy’s
Rejects Private Equity Buyout That May Turn Hostile

Macy’s has rejected an unsolicited $5.8 billion offer to take the department store chain private, prompting a threat from the bidders to go straight to shareholders. Its shares have fallen 25% over the past 12 months as the retail giant restructures itself. But the stock jumped 56% in the past three months on speculation of a buyout.

• Macy’s issued a statement Sunday confirming that private-equity firms Arkhouse and Brigade Capital made an offer to acquire the company for $21 a share on Dec. 1. The board has now rejected the bid, saying it failed to provide compelling value.

• Arkhouse issued its own statement saying it may go hostile, bypassing board approval and appealing directly to shareholders. “We have conviction in the long-term success of Macy’s but believe that its potential will only be realized as a private company,” it said.

• Macy’s last week announced it had laid off an additional 3.5% of its workforce, equivalent to some 2,350 employees. It’s been reorganizing for years to try to lower costs. CEO Jeff Gennette is due to step down in a few weeks, to be replaced by Tony Spring.

What’s Next: The offer may have some appeal to shareholders if they are frustrated with Macy’s turnaround efforts. Arkhouse said it sees the potential for a meaningful increase to its original proposal if it is granted access to the necessary due diligence. But that seems a long way off for now.

—Brian Swint

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As Election Heats Up, Biden Cancels More Student Debt

The White House unveiled a plan to forgive another $5 billion in student debt, bringing the total loan forgiveness approved by the administration to $137 billion. Student loan forgiveness has been a cornerstone issue of President Joe Biden and a campaign pledge, but a bigger plan was derailed by the Supreme Court.

• The latest plan came just one week after the administration’s last round of student debt cancellation for borrowers that took out less than $12,000 and have been in repayment for at least a decade. More than 3.7 million Americans have seen their student debt canceled under Biden’s presidency.

• Nearly 74,000 will see debt canceled, including 44,000 teachers, nurses, firefighters, and other public workers who have been paying student loans for more than 10 years. Another 30,000 low-income borrowers will also see debt forgiven. That group has been repaying student loans for more than 20 years.

• The White House said it is moving ahead to deliver even greater debt relief. The administration has erased billions of dollars in debt for eligible public service workers, disabled borrowers, and defrauded students, mostly through revisions to existing programs.

• After the Supreme Court struck down Biden’s broader plan to erase $430 billion in student loan debt, the White House started the SAVE program, which calculates monthly payments based on a borrower’s income and family size and forgives the remaining balances after a certain number of years.

What’s Next: Two thirds of likely Democratic primary voters in New Hampshire plan to write-in Biden on Tuesday, a CNN poll found. This is where voters are asked to write-in the name of a candidate seeking election, whose name does not appear on the ballot. Florida Gov. Ron DeSantis dropped out of the Republican race, leaving the front runners as former President Donald Trump and former U.N. Ambassador Nikki Haley.

—Evie Liu and Liz Moyer

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MarketWatch Wants to Hear From you.

Tax filing season starts Jan. 29. What are some things this year that taxpayers can look forward to, and what are some changes that people need to know?

A MarketWatch correspondent will answer this question soon. Meanwhile, send any questions you would like answered to [email protected].

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner