US stock markets celebrated another bullish day on Monday, posting solid gains as investors remained hopeful the Fed would scale down its rate hikes. At the same time, the ongoing earnings season showed some optimism. Among the big gainers was Salesforce, which found a new major investor, while Spotify announced a significant layoff, sending the stock price 5% higher.
Fed done with rate hikes soon?
In terms of the economy, despite Federal Reserve officials’ assurances that interest rates will rise above 5%, the markets have reacted favourably to another projected shift toward a lesser rate increase in February due to poor economic indicators. As a result, the CME FedWatch Tool, which serves as a proxy for upcoming Fed rate decisions and US monetary policy, indicates the markets are pricing in a 99.8% possibility of a 25-basis point increase on February 1st.
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Earnings season not as bad as feared
According to statistics from FactSet Research, of the nearly 11% of S&P 500 businesses that have reported fourth-quarter profits to date, just 67% have seen earnings per share exceed expectations, which is below the five-year average of 77%.
Furthermore, earnings predictions for S&P 500 firms have improved marginally in recent weeks. With a predicted earnings decrease of 3.9% for the most recent quarter, compared to 4.1% at the beginning of the year.
As a result, analysts now anticipate three consecutive quarters of profit reductions through the second quarter of this year, with Q1 and Q2 earnings expected to dip 0.6% and 0.7% annually, respectively, before rising in the second half of 2023.
S&P 500 could go as high as $4100 in case bulls keep up the pressure, aiming a new support of $4000 or in case of a stronger correction a previous $3900
S&P 500 1D chart, source: tradingview.com, author’s analysis
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