Market rallies into earnings season

Last week the US stock market broke out of the short-term consolidation that closed out 2022 and kicked off 2023, putting together its best week in two months as traders prepare to push deeper into a key earnings season.¹

The S&P 500 (SPX) closed at its highest level in a month last on Friday in the wake of the latest Consumer Price Index (CPI) data, and as the first big banks reported their quarterly numbers:

The headline: Bulls get the breakout.

The fine print: The big banks that kicked off Q4 reporting season on Friday (mostly) topped their earnings and revenue numbers, and their stocks (mostly) rallied after selling off early in the session.

The number: 0.3%, the increase in December’s core CPI reading (excluding food and energy prices). That was higher than November’s number and above estimates—a potentially “sticky inflation” detail that may have been overlooked in the enthusiasm over the cooler-than-expected headline numbers.

The scorecard: The Russell 2000 (RUT) extended its run as the strongest major US index:

Sector roundup: The strongest S&P 500 sectors last week were consumer discretionary (+5.7%), information technology (+4.6%), and real estate (+4.4%). The weakest sectors were consumer staples (-1.5%), health care (-0.2%), and utilities (+0.5%).

Stock movers: Cincor Pharma (CINC) +144% to $28.74 on Monday, Sotera Health (SHC) +100% to $17.25 on Tuesday. On the downside, Cutera (CUTR) -23% to $31.04 on Monday, Kala Pharmaceuticals (KALA) -20% to $21 on Wednesday.

Futures: Gold topped $1,900/ounce for the first time since last May, with February gold futures (GCG3) closing Friday at $1,922.70, higher than they’ve been since last April. February WTI crude oil (CLG3) closed Friday at a two-week high of $79.92/barrel. Week’s biggest up moves: March lumber (LBSH3) +15.8%, January Micro bitcoin (MBTF3) +15.1%. Week’s biggest down moves: February VIX (VXG3) -10.5%, March natural gas (NGH3) -5.2%.

More inflation numbers (PPI), retail sales, and housing data highlight the economic calendar:

●Tuesday: Empire State Manufacturing Index
●Wednesday: Producer Price Index (PPI), Retail Sales, Industrial Production, Capacity Utilization, Business Inventories, NAHB Housing Market Index
●Thursday: Housing Starts and Building Permits
●Friday: Existing Home Sales

The first full week of earnings season features more financial stocks, airlines…and Netflix:

●Tuesday: Goldman Sachs (GS), Morgan Stanley (MS), Silvergate Capital (SI), United Airlines (UAL)
●Wednesday: Prologis (PLD), PNC (PNC), Alcoa (AA), Wintrust (WTFC)
●Thursday: American Airlines (AAL), Fastenal (FAST), Fifth Third Bancorp (FITB), KeyCorp (KEY), Procter and Gamble (PG), Netflix (NFLX)
●Friday: Schlumberger (SLB)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

Martin Luther King Jr. Day has been a market holiday only since 1998, but in those 25 years the shortened week following it has tended to be, more often than not, a period of relative weakness for US stocks:

While this week’s performance will be shaped by the current “facts on the ground”—especially the nature of Wednesday’s PPI and the tenor of earnings—the SPX gained ground over these four trading days 10 times while falling 15 times.²

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¹ MorganStanley.com. Challenging the Consensus on 2023. 1/10/23.
² Reflects S&P 500 (SPX) daily closing prices, 12/31/97–1/30/21. Supporting document available upon request.