The U.S. stock market seems poised for a soft start this morning, as traders return from a three-day holiday weekend. Overnight, the markets in Europe have been under pressure, and on our shores the S&P 500 Index futures have been moving lower in pre-market trading. This week, investors will be following the latest corporate and economic news, while also speculating about the Federal Reserve’s next move. Tensions with China, and hostilities in Ukraine may also be a part of the conversation.
Numerous economic reports will be released this week. However, investors will be concentrating on two issuances, in particular. On Wednesday, the Federal Open Market Committee (FOMC) will publish the minutes from its latest meeting. This text will be closely scrutinized by investors looking to better understand the central bank’s views on the economy and monetary policy. On Friday, the Personal Consumption Expenditures (PCE) Price Index for January will be released. This report will be closely watched by the Fed, as it measures the prices that consumers actually pay for various goods and services.
It should be noted that inflation has proven difficult to tame, and remains well above the Federal Reserve’s 2% target level. Last week, the mood on Wall Street turned negative when a couple of prominent central bank officials suggested that further interest rate hikes might be necessary. In addition, a handful of investment banks tempered their expectations to reflect persistent inflationary pressures. Clearly, these developments did not sit well with investors.
In corporate news, the fourth-quarter earnings season will soon be winding down. Most of large corporations have already delivered their reports, and we are now hearing from numerous midsized and small names. In general, the results posted for the final months of 2022 have been unimpressive. Guidance for the first part of 2023 suggests that further challenges lay ahead, although some improvement is expected in the second half of the year. This morning we received mixed reports from Home Depot (HD) and Walmart (WMT). Later today, we will hear from Toll Brothers (TOL) and Palo Alto Networks (PANW).
From a technical vantage point, the S&P 500 Index started to pull back at the start of February, and has spent most of the month locked in a sideways range. The environment remains uncertain, and it is not clear what might serve as the catalyst needed to push stocks higher from here. It should be noted that the market trades at a price-to-earnings multiple of about 17, which is not inexpensive given the current backdrop.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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