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Week Ahead: Inflation Data, Interest Rates, and Time to Buy Shopify Breakout?
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The week of February 13 should be a busy one for markets. With earnings season nearing its end, and inflation data coming out on Tuesday, there is a lot of information for the market to work through.
Last week was the worst week of the year thus far for stock indexes, although they remain in positive territory. Earnings season has been somewhat underwhelming with big tech guiding down. Quarterly EPS growth for S&P 500 companies, excluding energy was down -9%, which is the worst growth rate since 2020.
According to a recent Zacks report, earnings were “not great, but not bad either.” Additionally, Q1 earnings estimates show that while earnings estimates trends remain down, the pace and magnitude of cuts is slowing considerably.
Image Source: Zacks Investment Research
There are still a few significant earnings reports to come out this week, and some major technical developments in the interest rates markets. Earnings reports to come this week include (KO - Free Report) , (SHOP - Free Report) , and (CSCO - Free Report) , and we will also get CPI Inflation numbers on Tuesday.
Last Week Highlights
Last week was a light one for data, but that didn’t stop the market from being volatile. Even after a big sell-off last week the market remains strong so far this year, with the tech-heavy ETF (QQQ - Free Report) leading the way. This is a stark contrast to last year when (DIA - Free Report) , the Dow Jones ETF and other value names were the relative leaders, but now investors have been buying the riskier, high growth names.
Image Source: Zacks Investment Research
Disney (DIS - Free Report) , coming in on its 100 year anniversary, announced 7,000 jobs being cut, and $5.5 billion in cost cutting. Recently reappointed CEO Bob Iger has taken the reigns and set a new path for DIS business. Disney will be reorganizing, and focusing on turning a profit on their streaming services going forward. The shift at Disney has also caused activist investor Nelson Peltz to withdraw from his proxy battle in solidarity with Iger and his decisions, netting a cool $150 million paper profit for the investor.
Interest rates rallied emphatically, with the ten-year treasury rate moving from 3.4% to 3.7% and breaking out of a bullish technical wedge. After the exuberant rally so far this year on the expectations of a Fed pivot, and soft landing, the narrative swung this week. With the economy strong and employment tight, Fed officials have shifted their rhetoric. Market expectations have begun to move towards higher for longer interest rates.
Image Source: TradingView
Monday
The first day of the week is an uneventful one regarding data, but the market is digesting everything from last week. So far, the market has rallied strongly in the morning session of trading.
Notable earnings: CDNS, ANET, SEDG, PLTR
Tuesday
Tuesday morning brings the most anticipated economic data release of the week, Inflation numbers. CPI, and Core CPI will be announced at 8:30 am EST.
The rate of inflation is critical to the Federal Reserve’s interest rate policy path and thus stock and bond markets. When a below expected inflation rate came out in January, the Fed received high praise, and the market’s narrative put inflation in the rear-view mirror sending the stock market higher. But those expectations quickly subsided when hot employment data dashed some hopes for a soft landing.
With a tight labor market upward pressure on wage inflation remains a risk, and the Fed will need to continue raising rates. A closely watched phrase from Jerome Powell was his commitment to remain “data-dependent,” so an above expected CPI print may sway sentiment towards the bearish side and shake markets.
As a reminder, January CPI report showed that inflation slowed -0.1% MoM, better than the expected +0.1%. This brought the annual inflation rate down to 6.5%, well off its June 2022 highs of 9.1%.
Notable earnings: KO, SFTBY, MAR, DVN, CLF, BTU, TRIP, GEO
Wednesday
One highly anticipated earnings report this week is the ecommerce platform Shopify. Shopify was one of the 2021 bull market darlings rallying 450% following the pandemic, only to crash back down 85% during the 2022 bear market.
Shopify earnings coincide with a decisive technical chart pattern. SHOP has made a clear breakout from an inverse head and shoulders bottom, nearly doubling off it’s 2022 lows. But this week should show whether SHOP will break out of last week’s range and continue to rally, or reverse lower signaling a very bearish, failed breakout.
Shopify currently holds a Zacks Rank #3 (Hold), indicating a mixed earnings revision trend. Shopify’s Price to Sales ratio ballooned to a ridiculous 67x in 2021 but has returned to a more reasonable 11x more recently.
Shopify boasts impressive sales growth, with current quarter expected to grow 19.2% to $1.64 billion. Next year is expected to sustain that growth as well, projecting 20.3% sales growth to $6.6 billion. However, the company is expected to still post zero, to negative EPS until next year. So while the company is growing tremendously, if the stock market environment remains challenged, companies with no earnings may not remain favorable.
Image Source: TradingView
Also, on Wednesday there will be data releases on Retail Sales, Empire Manufacturing Index, NAHB Homebuilders Index, and Business Inventories.
Thursday morning brings another critical economic data point, jobless claims. With the Fed focusing on staying data dependent, employment data will be an important considerations regarding interest rate policy.
Some additional economic releases will include Producer Price index, Housing starts, and Household debt, which will all factor in to Fed policy decisions.
Another stock with earnings worth paying close attention to is Consolidated Edison (ED - Free Report) , the NYC metropolitan area utilities company. ED currently sports a Zacks Rank #2 (Buy), meaning analysts have been revising earnings expectations higher. As a utility company, ED is considered a steady earner and defensive investment and has a 3.5% dividend yield.
During 2022, ED was one of few names that outperformed the market and provided positive returns. Whether defensive stocks like ED continue to be favored by investors this year may signal what to expect for 2023 stock market returns. If investors bid up Utilities like they did last year, we may get another year of shaky returns for the broad market.
Image Source: Zacks Investment Research
Notable Earnings: NSRGY, AMAT, ED, DDOG, HUBS, DASH, POOL, DKNG
Friday
Friday will be another light day for data and earnings reports. With this week being a busy one for important data, I would not be surprised to see some volatile action on Friday. Following important data it sometimes takes a couple of days for the information to be fully priced in, so be weary of whipsaw moves immediately following announcements.
Notable earnings: DE, LBRDA, ABR,
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Week Ahead: Inflation Data, Interest Rates, and Time to Buy Shopify Breakout?
The week of February 13 should be a busy one for markets. With earnings season nearing its end, and inflation data coming out on Tuesday, there is a lot of information for the market to work through.
Last week was the worst week of the year thus far for stock indexes, although they remain in positive territory. Earnings season has been somewhat underwhelming with big tech guiding down. Quarterly EPS growth for S&P 500 companies, excluding energy was down -9%, which is the worst growth rate since 2020.
According to a recent Zacks report, earnings were “not great, but not bad either.” Additionally, Q1 earnings estimates show that while earnings estimates trends remain down, the pace and magnitude of cuts is slowing considerably.
Image Source: Zacks Investment Research
There are still a few significant earnings reports to come out this week, and some major technical developments in the interest rates markets. Earnings reports to come this week include (KO - Free Report) , (SHOP - Free Report) , and (CSCO - Free Report) , and we will also get CPI Inflation numbers on Tuesday.
Last Week Highlights
Last week was a light one for data, but that didn’t stop the market from being volatile. Even after a big sell-off last week the market remains strong so far this year, with the tech-heavy ETF (QQQ - Free Report) leading the way. This is a stark contrast to last year when (DIA - Free Report) , the Dow Jones ETF and other value names were the relative leaders, but now investors have been buying the riskier, high growth names.
Image Source: Zacks Investment Research
Image Source: TradingView
Monday
The first day of the week is an uneventful one regarding data, but the market is digesting everything from last week. So far, the market has rallied strongly in the morning session of trading.
Notable earnings: CDNS, ANET, SEDG, PLTR
Tuesday
Tuesday morning brings the most anticipated economic data release of the week, Inflation numbers. CPI, and Core CPI will be announced at 8:30 am EST.
The rate of inflation is critical to the Federal Reserve’s interest rate policy path and thus stock and bond markets. When a below expected inflation rate came out in January, the Fed received high praise, and the market’s narrative put inflation in the rear-view mirror sending the stock market higher. But those expectations quickly subsided when hot employment data dashed some hopes for a soft landing.
With a tight labor market upward pressure on wage inflation remains a risk, and the Fed will need to continue raising rates. A closely watched phrase from Jerome Powell was his commitment to remain “data-dependent,” so an above expected CPI print may sway sentiment towards the bearish side and shake markets.
As a reminder, January CPI report showed that inflation slowed -0.1% MoM, better than the expected +0.1%. This brought the annual inflation rate down to 6.5%, well off its June 2022 highs of 9.1%.
Notable earnings: KO, SFTBY, MAR, DVN, CLF, BTU, TRIP, GEO
Wednesday
One highly anticipated earnings report this week is the ecommerce platform Shopify. Shopify was one of the 2021 bull market darlings rallying 450% following the pandemic, only to crash back down 85% during the 2022 bear market.
Shopify earnings coincide with a decisive technical chart pattern. SHOP has made a clear breakout from an inverse head and shoulders bottom, nearly doubling off it’s 2022 lows. But this week should show whether SHOP will break out of last week’s range and continue to rally, or reverse lower signaling a very bearish, failed breakout.
Shopify currently holds a Zacks Rank #3 (Hold), indicating a mixed earnings revision trend. Shopify’s Price to Sales ratio ballooned to a ridiculous 67x in 2021 but has returned to a more reasonable 11x more recently.
Shopify boasts impressive sales growth, with current quarter expected to grow 19.2% to $1.64 billion. Next year is expected to sustain that growth as well, projecting 20.3% sales growth to $6.6 billion. However, the company is expected to still post zero, to negative EPS until next year. So while the company is growing tremendously, if the stock market environment remains challenged, companies with no earnings may not remain favorable.
Image Source: TradingView
Also, on Wednesday there will be data releases on Retail Sales, Empire Manufacturing Index, NAHB Homebuilders Index, and Business Inventories.
Notable Earnings: CSCO, EQIX, KHC, AIG, BIIB, GOLD, HEINY, TTD, RBLX, MRO
Thursday
Thursday morning brings another critical economic data point, jobless claims. With the Fed focusing on staying data dependent, employment data will be an important considerations regarding interest rate policy.
Some additional economic releases will include Producer Price index, Housing starts, and Household debt, which will all factor in to Fed policy decisions.
Another stock with earnings worth paying close attention to is Consolidated Edison (ED - Free Report) , the NYC metropolitan area utilities company. ED currently sports a Zacks Rank #2 (Buy), meaning analysts have been revising earnings expectations higher. As a utility company, ED is considered a steady earner and defensive investment and has a 3.5% dividend yield.
During 2022, ED was one of few names that outperformed the market and provided positive returns. Whether defensive stocks like ED continue to be favored by investors this year may signal what to expect for 2023 stock market returns. If investors bid up Utilities like they did last year, we may get another year of shaky returns for the broad market.
Image Source: Zacks Investment Research
Notable Earnings: NSRGY, AMAT, ED, DDOG, HUBS, DASH, POOL, DKNG
Friday
Friday will be another light day for data and earnings reports. With this week being a busy one for important data, I would not be surprised to see some volatile action on Friday. Following important data it sometimes takes a couple of days for the information to be fully priced in, so be weary of whipsaw moves immediately following announcements.
Notable earnings: DE, LBRDA, ABR,