John Hancock: Weekly Market Recap Week Ended January 27th

Subdued earnings

Nearly one-third of the way through earnings season, the proportion of S&P 500 companies that have beaten analysts’ earnings expectations is slightly smaller than usual. About 69% had exceeded net income expectations as of Friday, trailing the five-year average of 77%, according to FactSet. Overall, earnings are expected to decline 5% relative to a year ago.

Fed pivot?

At its next meeting ending on Wednesday, the U.S. Federal Reserve is expected to lift its benchmark interest rate again, but it’s widely expected to hike by just a quarter of a percentage point rather than a half point. In 2022, the Fed approved seven rate increases, including a half-point hike in December, down from its previous three-quarter-point increases.

Shrinking margins

With the peak of quarterly earnings season at hand, profit margins continue to shrink amid high inflation. Margins for S&P 500 companies are forecast to average around 11.4% for the fourth quarter of 2022, according to FactSet. If that figure is maintained by the time all quarterly reports are released, it would mark the sixth quarter in a row of declining profit margins.

Jobs ahead

A labor market update due out on Friday is likely to be the most closely watched economic report of the week. The release covering January follows a report that showed the economy generated 223,000 new jobs in December—the fifth consecutive month with jobs gains in the 200,000 to 300,000 range and the 24th month in a row with at least 200,000.

Source: https://wmr.jhinvestments.com/