Stock Market Investing Action Plan: Earnings Separator Site title Separator Site title

It’s worth remembering that, in the first week of last year, the Nasdaq dropped 4.5% and the S&P 500 lost 1.9%. By comparison, 2023 is off to a glowing start. The Nasdaq, S&P 500 and Dow industrials are all up more than 1%, keeping a rally attempt in play. There is a mottled optimism as the fourth-quarter earnings season prepares to get underway. China’s stock markets are rallying briskly, even as Covid uncertainties hinder its economic outlook. Homebuilder stocks are breaking out, despite a rate-hike-fueled housing recession. And there is no end in sight for the massive disruptions caused by Russia’s war on Ukraine. Investors can’t afford to get too mired in the complexities. Just keep a finger on the market pulse, a watchlist ready, and be ready for a follow-through day.

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Stocks Market Names To Watch: Several Break Out

With big caps keeping a thumb on the major stock market indexes, it’s a stock picker’s market. But at least the number of stocks from which to choose has increased — and across diverse sectors. Cosmetics maker ELF Beauty (ELF) jumped out of a flat base, while energy giant Exxon Mobil (XOM) cleared an early entry near the 50-day moving average. Ore miner Rio Tinto (RIO) and equipment supplier United Rentals (URI) broke out after long consolidations, with several related stocks also showing strong action. Discount retailer TJX (TJX) broke out from a tight flat base formed just above a long consolidation, one among a number of retailers whose charts have recently improved.

Economic Calendar: Keeping Ahead Of The Fed

The consumer price index, out Thursday at 8:30 a.m. ET, could seal the deal for a Fed downshift to a quarter-point rate hike on Feb. 1. Wall Street anticipates a relatively tame batch of inflation data, with the overall CPI edging up 0.1% on the month and the core CPI, excluding food and energy, rising 0.3%. The NFIB Small Business Optimism Index, out Tuesday at 6 a.m., will provide new survey data on firms’ hiring and wage-hike intentions. And that will garner a close look after Friday’s jobs report showed cooling wage growth and softer labor demand evidenced by a shorter workweek. The IBD/TIPP Economic Optimism Index, out Tuesday at 10 a.m., will provide an early-month read on how consumer confidence is holding up as inflation recedes but more companies announce layoffs.

Jobs Report: Cooler Wage Growth, Weak ISM Are Good News For Fed; Dow Jones Rises

Stock Market Perspective: Rally Attempt Strengthens

A back and forth week left the market status “in correction,” but Friday’s strong session turned the S&P 500 and Nasdaq composite toward their first weekly advance in five weeks. It also punched the Dow back above its 50-day moving average. Those were positives for the stock market’s five-day old rally attempt. Boeing (BA) was the breadwinner for the Dow, up almost 10% to its highest level since February following a mid-November breakout. Dow (DOW) chemical and Walt Disney (DIS) also posted big moves, pulling even with critical levels of support. More than two-thirds of the industrials gained more than 1%. UnitedHealth Group (UNH) and Microsoft (MSFT) both gave up more than 7%. 

Earnings Season: Chip Giant, Big Banks Set Things In Motion

The fourth-quarter reporting season officially gets underway with Taiwan Semiconductor (TSM) launching the season for big chipmakers on Thursday. Analysts target a 53% earnings jump and a 29% gain in revenue. Big banks follow with the usual barrage on Friday, as JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) lead the day’s line up. JPMorgan and UnitedHealth (UNH) also launch the season for Dow industrials stocks. Analysts expect uneven earnings declines for the big banks, with a 56% drop projected for Wells Fargo, while estimates are for a 7% drop for JPMorgan.

S&P 500: Odds On For A Stock Market Rebound

The S&P 500’s 19.4% drop in 2022 was the fourth worst year in its history. Three of those four worst years have occurred in the past two decades, according to Sam Stovall, historian and chief investment strategist with CFRA. Stovall points out, however, that following the 21 down years for the index since 1945, the S&P 500 has gained 81% of the time the following year. Those advances have averaged 14.2%. Rebounds after the index’s 12 double-digit down years have been a little softer, averaging gains of 7.8% and rising 73% of the time. Overall, the S&P 500 advanced in 71% of all years, with an average gain of 8.9%.

Homebuilders: A Perplexing Rally

As heavyweight homebuilders D.R. Horton (DHI) and Lennar (LEN) break out of 13 month bases, KB Home (KBH) readies its fourth quarter report for Wednesday. Earnings and revenue growth for KB Home have slowed for two years now, but remain at healthy levels. Consensus views see a 50% earnings rebound, while revenue growth slows to 19%. Weather could have an impact, but raw materials and labor costs are likely to remain pressing issues, while management perspective on the effect of rising mortgage interest rates on homebuyer sentiment will be key. KB Home is working on its fourth straight monthly gain, up 36% since the end of September. 

International Stock Markets: China’s Black Box Rally

China stocks kicked out to a strong start in 2023, with the Shanghai Composite up 2.2% in the first week of trade. Hong Kong’s Hang Seng Index soared 6.1%. Pinduoduo (PDD), the Nasdaq 100’s biggest gainer in 2022, rallied almost 18% in the first week. Alibaba Holdings (BABA) bolted 21% higher, moving decisively above its 200-day moving average for the first time in 23 months. Tech stock tracker Kraneshares CSI China Internet ETF (KWEB) gained more than 14% in the first week of January, putting it more than 100% above a late-October low. Stock market investors assess China’s steady easing of Covid restrictions as a clear positive, although elimination of Covid testing makes the reopening something of a black box in terms of infection impact. And the specter of a possible economic recession weighs heavy on many outlooks as the country heads for the Chinese Lunar New Year. 

Stock Market Earnings 

Monday:

Commercial Metals (CMC) is due to report results for its first quarter through November on Monday morning. Stock market analysts expect EPS to grow 17.3% to $1.90 for the quarter, but earnings are expected to fall 28% for the full year vs. 2022. Still, CMC stock, which should benefit from the ramping of the infrastructure bill, rebounded from support at its 10-week moving average, posting a record high on Friday.

Jefferies Financial (JEF) is trading in a cup-with-handle base ahead of its Q4 earnings results late Monday. The New York-based investment firm’s earnings fell an average 51% over the last three quarters while revenue decreased an average 21% over the last four periods. Analysts expect that to continue with a 37% drop in EPS to 76 cents as revenue falls 34% to $1.19 billion for the fourth quarter. 

Tuesday:

Albertsons (ACI) reports fiscal third-quarter performance data in the stock market on Tuesday. The consensus target marks the first earnings decline in six quarters, down 15%. Revenue growth is expected to remain on track, with a 5% gain. Albertsons itself is the target of a $24.6 billion merger deal with larger competitor Kroger (KR). The deal is an effort to bulk up against industry incursion by Walmart (WMT), now the largest U.S. grocery chain. Kroger is second largest. Albertsons is fourth largest, just behind Costco Wholesale (COST).

Friday:

Delta Air Lines (DAL) reports fourth-quarter earnings Friday, with airlines under close scrutiny following Southwest Airlines‘ (LUV) weather-driven operational meltdown in December. Delta expects strong travel demand to propel its 2023 growth as it steadily recovers from the Covid-19 pandemic. The Atlanta-based carrier turned in positive earnings in four of the last five quarters, and revenue gains the last three periods. For the upcoming results, Wall Street sees Delta earnings soaring 495% to $1.31 per share as revenue rises 29.5% to $12.26 billion.

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