18.02.2024 All You Need To Know To Start Your Trading Week

Stock bulls pushed the S&P and Dow up to new record highs last week. Nothing has fundamentally changed regarding Federal Reserve policy since a hotter-than-expected CPI read on Tuesday led Wall Street to further dial back rate cut expectations.

Most now expect a total of three or maybe four 25 basis point rate cuts starting at the Fed’s June meeting. Many bears are pointing to the fact that this was roughly the consensus at the end of August-beginning of September last year.

Yields on the 10-year Treasury note have also returned to about the same levels they were late last summer. The S&P 500, however, is more than +500 points higher and bears question whether stocks can realistically hold at these levels without more solid confirmation of rate cuts in the first half of 2024.

Bulls counter that investors last summer were worried about that the Fed’s tight monetary policy would push the economy into recession, which has not happened.

In fact, the economy has shown modest signs of growth even as inflation has significantly slowed. Many bulls are starting to argue that there’s no reason that trend can’t continue even if rates don’t come down as fast or as far as some are hoping. Bulls also argue that recent earnings from big tech companies support the growing profit expectations for all things AI-related, data that investors didn’t yet have last summer.

Data to watch

Looking to next week, remember that stock, bond, and commodity markets are closed on Monday for President’s Day or shortened sessions via electronic trading.

That main economic highlights next week include the “minutes” of the Fed’s January policy meeting on Wednesday; and flash manufacturing and services PMI’s and Existing Home Sales on Thursday.

On the earnings front next week, the most anticipated release is Nvidia, which reports on Wednesday.

Expectations are absolutely crazy with earnings growth projected to come in north of +400% while sales growth is seen well above +200%. But that may not be out of line. In Q3, the company posted revenue growth of +206% and net income growth of a staggering +1,259%! Overall, the company’s earnings in Q3 topped expectations by almost +20%. Nvidia’s stock price no doubt currently reflects the enthusiasm for upcoming results, having gained more than +50% this year alone.

The company’s market capitalization this week surpassed Amazon on Tuesday, then jumped ahead of Alphabet on Wednesday. With a market cap of nearly $1.8 trillion, it is now the fourth most valuable company in the world behind Microsoft, Apple, and Saudi Aramco.

Investors next week are also anxious to see results from major US retailers Walmart and Home Depot on Tuesday.

Other earnings of note include Centerpoint Energy, CoStar, Diamondback Energy, Medtronic, Palo Alto Networks, and Toll Brothers on Tuesday; Analog Devices, Garmin, Marathon Oil, Nutrien, Rio Tinto, Rivian, and Suncor on Wednesday; Block, Booking Holdings, Dominion Energy, Intuit, Keurig Dr Pepper, Moderna, and Pioneer Natural Resources on Thursday;  and Berkshire Hathaway and Warner Bros. Discovery on Friday.

A little further out, there are growing concerns that stocks could face more serious headwinds toward the end of the month as deadlines for Congress to pass funding bills approach.

Lawmakers have until March 1 to prevent a partial government shutdown, which will expand even further on March 8 if a deal is not reached.

Bears are quick to remind that the persistent funding fights and shutdown threats in Washington have already dented the US’s credit rating and more dysfunction runs the risk of deeper credit downgrades. That of course would raise the cost of servicing the US debt even further at a time when many investors are already alarmed about the deficit.

All You Need To Know To Start Your Trading Week

Wishing you a great week!