US Stocks Flat Ahead Of Data Deluge — But Analyst Says Investors May Be In For A Surprise As Earnings Pessimism Overdone

Zinger Key Points
  • The earnings season may not offer much good news but the pessimism appears to be overdone, LPL Financial says.
  • Fund manager Navellier says Investors are likely to rely more on earnings news than economic data for trading cues near term.

U.S. stocks may get off to a nervous start on Wednesday, as apprehensions concerning fourth-quarter earnings and the state of the economy continue to weigh down.

Tuesday, the major averages closed mixed, as traders factored in Goldman Sachs Group, Inc.’s GS disappointing earnings and the bleak business activity reading for the New York region.

Stocks started the session lower but clawed back their early losses only to sink further after the New York Federal Reserve’s Empire Manufacturing Survey showed a steeper-than-expected contraction in January.

The Dow Industrials recorded a loss of over 1%, as Goldman weighed down on the 30-stock blue-chip index. The buoyancy in the tech space helped the tech-heavy Nasdaq Composite close modestly higher for the session and at a fresh one-month high.

Most sectors closed in the red, led by materials, financials, communication services and healthcare stocks. The only noteworthy gains were recorded by the tech space.

U.S. Indices' Performance On Tuesday
Index Performance (+/-)   Value
Nasdaq Composite +0.14%   11,095.11
S&P 500 Index -0.20%   3,990.97
Dow Industrials +2.00%   33,910.85

Earnings will dominate macro considerations, as management teams’ offer their outlook and an investor may be well advised to stay focused on earnings, fund manager Louis Navellier said in a note.

LPL Financial Chief Equity Strategist Jeffrey Buchbinder said the earnings season may not offer much in the way of good news but the pessimism may have been overdone. Investors will likely be surprised at how well stocks hold up on the news.

“Look for earnings throughout the next year to exceed those pessimistic forecasts and—along with falling inflation and the end of Federal Reserve rate hikes—serve as positive catalysts for solid gains for stocks in 2023,” he added.

Here’s a peek into index futures trading:

U.S. Futures' Performance On Wednesday
Index Performance (+/-)  
Nasdaq 100 Futures +0.11%  
S&P 500 Futures +0.11%  
Dow Futures +0.03%  
R2K Futures +0.15%  

In premarket trading on Wednesday, the SPDR S&P 500 ETF TrustSPY rose 0.10% to $398.17 and the Invesco QQQ TrustQQQ edged up 0.05% to $281.68, according to Benzinga Pro data.

On the economic front, the Mortgage Bankers Association is scheduled to release its weekly mortgage applications volume data at 7 a.m. EST. In the week ended Jan. 6, the metric rose 1.2%.

The Labor Department is due to release its producer price inflation report for December at 8:30 a.m. EST. Although the report is relatively less important than its consumer price inflation counterpart, it could shed some light on how retail price inflation will pan out in the coming months. Economists expect a 0.3% month-over-month drop in the headline index and a 0.1% increase in the core reading, down from a 0.3% drop and 0.4% increase, respectively.

The annual rate of the PPI is expected to ease from 7.4% to 6.8%.

Around the same time, the Commerce Department is scheduled to release its retail sales report for December — a key month, which encompasses the main part of the holiday period. On a month-over-month basis, retail sales may have declined 0.3% compared to a 0.2% pullback in November.

The Redbook index, a sales-weighted index of year-over-year same-sales growth in a sample of large U.S. general merchandise retailers, will be released at 8:55 a.m. EST.

Federal Open Market Committee member and Atlanta Fed President Raphael Bostic is scheduled to speak at 9 a.m. EST.

At 9:15, the Federal Reserve will release its industrial production report for December. Industrial output may have declined 0.1% month-over-month, with manufacturing output expected to be down a steeper 0.3%.

FOMC member and St. Louis Fed President James Bullard is expected to make a public appearance at 9:30 a.m. EST.

At 10 a.m. EST, the National Association Of Home Builders will release the results of its housing market survey for January. The housing market index based on the survey is expected to remain unchanged at a depressed level of 31.

The Commerce Department is scheduled to release its business inventories report, also at 10 a.m. EST.

The Treasury will auction 20-year bonds at 1 p.m. EST.

The Fed will release the Beige Book at 2 p.m. EST. The report provides anecdotal evidence of economic conditions in the 12 Federal Reserve districts.

Philadelphia Fed President Patrick Harker, also an FOMC member, will speak at 2 p.m. EST.

See also: Investing In Futures: A Beginner’s Guide

Stocks In Focus:

  • Moderna, Inc. MRNA rose about 5.75% in premarket trading after the company reported positive Phase 3 data for its respiratory syncytial virus vaccine candidate.
  • Tesla, Inc. TSLA extended its gains and advanced over 3%.
  • IBM Corp. IBM and PayPal Holdings, Inc. PYPL declined by over 1%.
  • Charles Schwab Corp SCHW and JB Hunt Transport Services, Inc. JBHT are among the notable companies reporting earnings ahead of the market open.
  • Among the companies reporting after the bell are Alcoa Corp. AA and Discover Financial Services, Inc. DFS.

Commodities, Other Global Markets:

Crude oil futures climbed over 1.7% and approached $82-a-barrel, extending the gains from Tuesday. The International Energy Agency raised its global oil demand forecast for the year, citing the reopening of the Chinese economy.

Bond yields are sinking further, reflecting expectations for a recession. The yield on the benchmark 10-year Treasury note slipped below the 3.5% level ahead of the U.S. trading.

The Asia-Pacific markets, with the exception of Japan, closed Wednesday’s session with modest gains. The Nikkei 225 rallied 2.5% on relief over the Bank of Japan holding monetary policy unchanged at the January meeting. The market was bracing for a change in the yield curve control policy.

The Indonesian and South Korean markets bucked the broader uptrend.

European stocks were trading mixed in late-morning deals.

Read next: Will This Week Bring Investors Good News? Netflix, Goldman, P&G And Other Key Earnings Reports To Watch

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