It’s one of those weeks when investors need to keep their head on a swivel.
A Federal Reserve policy decision Wednesday followed by January’s jobs report Friday would be enough to make it a key week for markets. Throw in earnings from tech titans Apple, Microsoft, Alphabet, Amazon, and Meta, as well as Boeing and oil giants
Chevron
and
Exxon,
and suddenly the week is action-packed with huge implications.
With the S&P 500 hovering near record highs, having notched a 2.5% gain so far this year, it might not take much to puncture the enthusiasm. Even if most of the news is good, one piece of bad news has the potential to derail the market’s momentum.
And there are plenty of potential pitfalls on the road ahead. The Fed’s January meeting is one such hazard, particularly as expectations for a rate cut in March are very much in the balance—a 52% probability, according to CME’s FedWatch tool.
The “Magnificent 7” tech stocks are never far from the spotlight, but as five of them report earnings in the coming days—they accounted for around 28% of the market cap-weighted S&P 500 as of year-end, according to S&P Dow Jones Indices—the group’s role in driving the market direction so far this year will come into focus.
There’s also the Treasury’s quarterly refunding announcement, the last of which in November helped push bond yields lower and set the course for the stock market’s year-end rally.
With so much happening in the days ahead, there’s plenty to pull the market in different directions.
Everything will need to go to plan for the S&P 500 to enjoy more gains beyond its recent rally.
—Callum Keown
*** Join Barron’s deputy editor Alex Eule and associate editor for technology Eric J. Savitz today at noon as they discuss the latest on tech earnings. They’ll look back at the first round of tech reports and look forward to the Big Tech reports still to come. Sign up here.
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Listen to What Jerome Powell Says After Fed Meeting
While no interest-rate actions are expected when the Federal Reserve winds up its two-day meeting on Wednesday, investors want clarification from Chairman Jerome Powell about the wide gap between the market’s much bigger expectations for rate cuts and the smaller ones policymakers project.
- Fed watchers will be listening for what signals Powell sends about a possible interest-rate cut as soon as the central bank’s mid-March meeting, and many expect him to leave the door open. But futures markets see a slightly higher than 50% probability that rates hold steady in March.
- The CME’s FedWatch tool projects as many as six rate cuts by December. David Wilcox, a senior fellow at the Peterson Institute for International Economics, said the fight to bring inflation down to 2% has been “maybe completely won.” Wilcox expects six quarter-point reductions this year.
- Shifting to a neutral bias doesn’t automatically mean the Fed will cut rates soon, Macquarie’s Thierry Wizman, global FX and interest rates strategist, told MarketWatch. He said the Fed has very good reasons to push the first rate cut to June.
- Economists are listening for updates on the Fed’s policy to shrink its balance sheet, which swelled to $9 trillion from $4.2 trillion in 2019. About $76 billion in maturing securities roll off monthly. After the December meeting, Fed officials began to discuss the possibility of slowing the roll off, MarketWatch reported.
What’s Next: The big economic data of the week after the Fed are Friday’s jobs report for January. Analysts expect the economy added 175,000 jobs, which would be lower than the surprisingly strong 216,000 added in December. A slowing labor market could encourage talk of March rate cuts.
—Randall W. Forsyth and Janet H. Cho
***
Five of ‘Magnificent Seven’ Tech Companies to Report
Some of the largest and most influential technology companies report earnings this week, including Microsoft, the software company whose market value surpassed $3 trillion for the first time last week. Alphabet and Microsoft report results on Tuesday, followed by Amazon,
Apple,
and
Meta Platforms
on Thursday.
-
Microsoft
is seeing growing enthusiasm for its push into generative AI software. Wall Street wants updates on its Copilot artificial intelligence software for Microsoft 365, which could generate billions of dollars in revenue. Microsoft has forecast December-quarter growth of 26% to 27% for its Microsoft Azure cloud business. -
Google and YouTube parent
Alphabet
will provide the first glimpse of fourth-quarter online ad spending. Wedbush analyst Scott Devitt sees a favorable setup for the digital advertising industry. Investors want to see growth in Alphabet’s Google Cloud business and updates on its AI business strategy, including Bard. -
Amazon
will provide updates on its Amazon Web Services cloud business, its e-commerce business margins during the holiday season, and Amazon’s advertising business. CFRA Research analyst Arun Sundaram sees fourth-quarter revenue growing 13%, which is above consensus. -
Meta shares nearly tripled last year as CEO Mark Zuckerberg’s “year of efficiency” boosted margins. Zuckerberg’s plans to have 350,000
Nvidia
H100 chips in Meta’s data centers by the end of 2024 means billions in new capital investment, including hiring engineers.
What’s Next: Apple’s forecast was for flat December-quarter revenue. iPads and Wearables sales are seen declining by double digits, and iPhones are facing more competition, but services should grow double-digits. The focus will be on Apple’s March quarter outlook, including Vision Pro headset sales, and CEO Tim Cook’s plans for using AI.
—Eric J. Savitz and Janet H. Cho
***
Evergrande
Liquidation a Landmark Moment for China Property
Liquidation a Landmark Moment for China Property
China Evergrande Group has been ordered into liquidation more than two years after its debt struggles kicked off a crisis in the Chinese property industry. It’s a symbolic moment for China’s sprawling real estate sector, which has suffered amid an economic slowdown and become a target of government stimulus.
- Evergrande was ordered to liquidate with more than $300 billion in liabilities by a Hong Kong court on Monday, having failed to deliver on a restructuring plan as intended after a court reprieve in December. There was an 11th-hour push by creditors to reach a deal over the weekend, The Wall Street Journal reported.
- Evergrande was once the largest real estate group in China—and its most indebted, with descent into distress in late 2021 marking one of the first major cracks in the property industry. Dozens of Chinese developers have since defaulted, with the sector in sharp focus amid a recent slowdown in the world’s second-largest economy.
- There have been numerous government stimulus pushes marking attempts to shore up developers, which are also highly entangled in China’s financial system. Evergrande’s saga stretched out for years, with Chinese state authorities getting involved in attempting to manage a restructuring. Evergrande filed for U.S. bankruptcy protection last August.
What’s Next: There have been more signs of support for the Chinese property sector, with a major city relaxing purchase restrictions for large homes and regulators calling for more city-level coordination on property financing. “We see more easing measures likely on the horizon, albeit gradually,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a Monday note.
—Jack Denton
***
United Seeks Options as Boeing’s Max 9 Returns to Skies
Boeing’s
737 MAX 9 is back in service, about three weeks after aviation regulators grounded the jet following the midair blowout of part of the fuselage on an
Alaska Air
flight. But carriers are still deciding what to do about their Boeing orders.
United Airlines
has approached Airbus about filling a potential void, Reuters reported.
-
France-based
Airbus
was approached about buying more A321neo jets because Boeing’s 737 Max 10 jet is delayed, the report said, adding that United CEO Scott Kirby recently flew to Toulouse to talk about a deal. A United spokesperson wouldn’t comment to Barron’s. United hasn’t canceled any of its 277 Max 10 orders. - Airbus is trying to convince some customers to return aircraft delivery slots so it could offer them to United, Bloomberg reported over the weekend. Certification for the Max 10 and a shorter Max 7 have been delayed. Carriers have ordered 1,180 Max 10s.
- Ryanair CEO Michael O’Leary said Monday that if any U.S. airlines refuse to take delivery of Boeing’s 737 MAX 10 aircraft, the Irish low-cost carrier will buy them instead. O’Leary said the MAX 10, which has yet to be certified by aviation authorities, was “transformational” during the company’s earnings presentation Monday, Reuters reported
- On Saturday, United Airlines Flight 1525 from Newark to Las Vegas was the first United passenger flight on a Boeing MAX 9 since the grounding. Alaska Air completed the first flight of a MAX 9 post-grounding on Friday.
What’s Next: Boeing is set to report earnings on Wednesday. Analysts expect a loss of 81 cents a share and sales of $21.3 billion, with deliveries of 155. The sales and delivery projections are both up from the same quarter in 2022.
—Liz Moyer and Al Root
***
Red Sea Blockade Is Raising Shipping, Manufacturing Costs
A violent blockade of the Red Sea is starting to delay global shipments, elevating returns for some companies and increasing costs for others, and igniting fears that inflation could spike again. About 21% of global container ships use the Suez Canal between the Red Sea and the Mediterranean, according to Jefferies.
- Houthi militants in Yemen have been attacking merchant ships in the Red Sea since November, and counterstrikes by American and British forces have not yet slowed the violence. The conflict could boost oil and container shipping companies, while hurting goods makers.
-
Most containership traffic, including vessels controlled by
Maersk
and
Hapag-Lloyd,
has been avoiding the area, instead going around Africa’s Cape of Good Hope. Freight rates for ships from Asia to Europe have tripled, while shipping rates to the U.S. have doubled, as total tanker availability has declined. -
Colgate-Palmolive
is planning for longer lead times for products as a result of the disruptions to shipping. ResMed, a San Diego company that makes medical sleep masks, said it’s expecting freight costs to rise and affect results. - The route has also lifted oil prices by disrupting the routes between Asia and Europe. Crude prices jumped again over the weekend as a drone attack in Jordan killed three U.S. troops, threatening to widen the conflict further.
What’s Next: Economists have been hesitant to estimate the cost of the disruptions, but the International Monetary Fund has previously found that when shipping costs double—as they have in the past month—it can cause global consumer prices to rise by 0.7 percentage points in the coming year.
—Avi Salzman and Janet H. Cho
***
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***
—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner
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