It was a great day for the US stock market yesterday, as all major indices closed higher. The Dow Jones Industrial Average was up by 0.8%, the S&P 500 by 1.28%, the Nasdaq by 1.76%, and the Russell 2000 by 1.17%. The rally of "meme stocks" continues, with companies like Carvana (NYSE: CVNA) and Bed Bath & Beyond (NASDAQ: BBBY) leading the charge. Despite a lack of major catalysts, the market continued to build on its weekly gains.
Today, all eyes are on December's Consumer Price Index (CPI) release at 8:30 AM ET. The big question on everyone's mind is whether the data will show further signs of cooling inflation, potentially driving the stock market even higher. As you may know, the market is expecting a near-term move from the Federal Reserve to the sidelines and around 50 basis points of easing in the second half of this year.
Investors are keeping an eye on how the market reacts to the CPI release after last month's spike in trading volume just before the data was released.
One of the critical factors driving risk sentiment right now is the hope for a "soft landing" - that is, a gradual slowing down of the economy rather than a sharp downturn. This is being driven by a combination of factors, including disinflation, solid labor markets, and healthy consumer and corporate balance sheets. Other bullish talking points include a likely slowdown in the pace of Fed tightening next month, earnings growth supported by cost-cutting, and a rebound in economic activity in China.
Another big area of focus for investors right now is earnings. The bar for Q4 earnings has been lowered more than usual, but investors will be particularly interested in companies' 2023 earnings estimates given the current macroeconomic uncertainty.
Earnings season kicks off tomorrow as the banks begin to release. Read our Reasons to Watch Bank Earnings in 2023.
Investors will be closely watching 2023 estimates due to the heightened macro uncertainty. By February 10, nearly 80% of the S&P 500's market cap will have reported their earnings.
The Street forecasts S&P 500 earnings will drop by 4.1% year over year in Q4. This would be the first contraction since Q3 of 2020, so it's definitely something to keep an eye on.
Additionally, bond manager Pimco is bullish on bonds for 2023, citing a baseline outlook for a modest recession. Meanwhile, Goldman Sachs (NYSE: GS) says that the downside for the dollar is limited, given the currently limited appetite for the euro and yuan.
In the world of crypto, FTX has announced that it has recovered more than $5 billion in assets that could help repay customers and investors. Binance CEO Changpeng Zhao is also looking to boost headcount by 15-30% as rival firms cut back.
Dig a little deeper into the market update:
Companies reporting earnings today include OrganiGram Holdings, Inc. (TSE: OGI), RF Industries Ltd. (NASDAQ: RFIL), Northern Technologies International Corp. (NASDAQ: NTIC), Opsens, Inc. (TSE: OPS). Check out this week's earnings preview.