President Donald Trump is back from Davos. Stocks are at record highs. And some of the biggest names in the market are set to report fourth quarter earnings.
In the week ahead, the latest Federal Reserve meeting and the January jobs reports will be economic highlights, after this past week revealed that the economy grew at a slower pace than expected during the final three months of 2017.
No change is expected in the Fed’s interest rate policy and there will be no press conference with Federal Reserve chair Janet Yellen after the meeting. The central bank should keep its benchmark interest rate target pegged between 1.25%-1.50%. This will also be Yellen’s final meeting as Fed Chair, with Jerome Powell set to take over as Fed chair in early February after garnering Senate approval this week.
On Friday, the January jobs reports is expected to show 180,000 jobs were created in the first month of 2018, a bounce-back after December’s somewhat disappointing headline jobs number. The unemployment rate is expected to stay put at 4.1%.
On the earnings side, this coming week will feature some of the biggest names in tech, with Apple (AAPL), Amazon (AMZN), and Google parent company Alphabet (GOOGL) all expected to report earnings after the bell on Thursday. Wednesday afternoon will also be a major one for tech, with Facebook (FB), Microsoft (MSFT), Qualcomm (QCOM), eBay (EBAY), and PayPal (PYPL) all reporting results.
Other major earnings reports on the schedule for next week include McDonald’s (MCD) on Tuesday morning, Boeing (BA), AT&T (T), and Mondelez (MDLZ) on Wednesday, and Time Warner (TWX), MasterCard (MA), Visa (V), and UPS (UPS) on Thursday. All told, 119 members of the S&P 500 will report earnings this week.
Monday: Personal income, December (+0.3% expected; +0.3% previously); Personal spending, December (+0.4% expected; +0.6% previously); Dallas Fed manufacturing index, January (25.5 expected; 29.7 previously)
Tuesday: S&P Case-Shiller home price index, November (+0.6% expected; +0.7% previously); Conference Board consumer confidence, January (123 expected; 122.1 previously); President Donald Trump delivers the State of the Union.
Wednesday: ADP private payrolls, January (+183,000 expected; +250,000 previously); Employment cost index, fourth quarter (+0.6% expected; +0.7% previously); Chicago PMI, January (64 expected; 67.8 previously); Pending home sales, December (+0.5% expected; +0.2% previously); Federal Reserve interest rate decision (1.25%-1.5% expected; 1.25%-1.5% previously)
Thursday: Initial jobless claims (236,000 expected; 233,000 previously); Nonfarm productivity, fourth quarter (+1.1% expected; +3% previously); Markit U.S. manufacturing PMI, January (55.5 expected; 55.5 previously); ISM manufacturing PMI, January 958.6 expected; 59.3 previously); Auto sales, January (17.25 million vehicle annualized rate expected; 17.76 million vehicle annualized rate previously)
Friday: Nonfarm payrolls, January (+180,000 expected; +148,000 previously); Unemployment rate, January (4.1% expected; 4.1% previously); Average hourly earnings, month-on-month, January (+0.3% expected; +0.3% previously); Average hourly earnings, year-on-year, January (+2.6% expected; +2.5% previously); Factory orders, December (+0.9% expected; +1.3% previously); University of Michigan consumer sentiment, January (95 expected; 94.4 previously)
“I keep trying to figure out what the narrative is”
Nobel Prize-winning economist Robert Shiller is perplexed.
“I keep trying to figure out what the narrative [for the stock market] is,” Shiller told Yahoo Finance’s Jen Rogers in Davos this past week. “I think that economists have to be more expansive in this dimension. They don’t like to talk about narratives.”
For Shiller, the most likely story right now is that the current run we’re seeing in the stock market is a descendent of the 1928 stock market, which boomed under a pro-business president before the crash of 1929 which ushered in the Great Depression. And whether you’re a stock market bull or bear, no one likes to hear that a repeat of the 1929 crash is right around the corner.
But Shiller’s probing for one big story to explain the market comes at a time when it does seems as if there are a few market themes most investors agree on.
For one, global economic growth is strong and likely to remain strong through the end of the decade, as the IMF laid out this week. Another is that the tax cuts passed by the Trump administration last year were not priced into the market. This second idea is, of course, related to the first — strong growth will continue because taxes are now lower in the world’s largest economy. And the market is only now accepting this relationship.
But a third idea gaining traction is that whether it’s wage announcements due to lower taxes, investor optimism on the rise, or participation among retail investors surging, everything happening in markets and the economy right now is late cycle behavior. So everything is good right now, but everyone also knows it won’t last forever.
The current enthusiasm about markets and the economy, then, appears less an echo of the 1929 market which saw proclamations of markets having reached a new “permanently high plateau” and more a reflection of an investor class that knows business cycles still exist. Central bank actions after the financial crisis may have changed the length and shape of the current cycle, but ultimately rising employment, rising asset prices, and rising leverage overheat an economy and the excesses are burned off.
What ends each economic cycle and what the negative impacts are from a cycle’s end are unique in each downturn. But the story right now might be that for all of the optimism among consumers, politicians, business leaders, and investors, no one thinks there won’t be another downturn.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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