U.S. equity markets regained momentum in the first two weeks of 2023. The tech-heavy Nasdaq Composite Index is up 6.7%, while the S&P 500 index has gained 4.6% year-to-date. In this week, which is a shortened one, investors can expect earnings to drive the markets as several financial giants such as Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE: GS), PNC Financial Services Group (NYSE: PNC), and Discover Financial Services (NYSE:DFC) will report Q4 earnings.
Additionally companies, including United Airlines (NASDAQ: UAL), American Airlines (NASDAQ: AAL), and Netflix (NASDAQ: NFLX), will also report their quarterly results for the period that ended in December.
The U.S. Treasury Secretary, Janet Yellen, warned the country’s statutory debt limit could be breached next week, indicating the Democrats are likely to raise or suspend the debt ceiling. Federal lawmakers last raised the debt ceiling in December 2021 to $31.4 trillion. Yellen emphasized that Congress will take the required measures to prevent a sovereign debt default.
Big banks will be under focus
Morgan Stanley is expected to announce adjusted earnings of $1.25 per share in Q4, a decline of 40% year over year. Further, revenue is forecast at $12.17 billion, a decline of 16.2% year over year.
The last year has seen several banks and financial institutions struggle with challenging macroeconomic conditions ranging from rising interest rates and inflation to geopolitical tensions and supply chain disruptions.
A rising interest rate environment results in lower demand for loans across business verticals and also increases the probability of default. Further, a bearish macro environment has driven down revenue from investment banking, which is a high-margin business for banks.
Fees generated from global investment banking declined by 40% in the first three quarters to $77 billion, compared to the $132 billion figure in the same period in 2021.
Goldman Sachs recently announced plans to reduce its workforce by 3,200 employees and is forecast to report adjusted earnings of $5.25 per share, compared to earnings of $10.81 per share in the year-ago period.
Retail sales and PPI
The U.S. Census Bureau will report retail sales for the month of December, providing market participants with insights on consumer spending during the holiday season. Retail sales are expected to decline 0.5% in December, following a 0.6% fall in November.
A report from Investopedia states, “Despite record-breaking online sales early in the holiday shopping season, sales are anticipated to have underperformed last month as a combination of high inflation, rising interest rates, and the drawdown of household savings from early in the pandemic affected spending.”
Finally, the Bureau of Labor Statistics (BLS) will release the PPI or Producer Price Index on Wednesday for the month of December. The PPI tracks inflation from the view of manufacturers and wholesalers.
The BLS expects producer inflation to flatline in December after it rose 0.3% in the prior three months. On a year-over-year basis, price growth is expected to rise 7% in December, compared to a gain of 7.4% in November and much lower than its 11.7% growth in March 2022.
Core prices which exclude food and energy costs, are projected to surge by 0.1%, while annual growth might fall below 6% for the first time since June 2021.