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Profit from the Pros By Kevin Matras Executive Vice President
Stocks Closed Lower Last Week, Earnings Season Starts Ramping Up This Week
Stocks closed mixed on Friday with the Dow in the red, but the S&P and Nasdaq finished in the green. Although, they were all modestly lower for the week.
Inflation continues to weigh on investors' minds. That could be seen in a lower than expected Consumer Sentiment report which came in at 68.8 vs. last month's 70.6 and views for 70.4.
A disappointing Retail Sales report (-1.9% m/m), also weighed on stocks early on. But for perspective, sales were up 19.3% over the same time last year. And the holiday shopping season did just hit a 17-year high. Pretty impressive.
Same goes for some disappointing bank earnings. Although, the banks are in a good position for 2022, and are poised to benefit when the Fed begins raising rates later this year.
I'm reminded of Jamie Dimon's comments from early last week when he said he thinks the U.S. is headed for the best economic growth in decades, while speculating that his company will likely see "the best growth we've ever had." That's a pretty bullish outlook indeed.
As you know, the markets were closed yesterday for Martin Luther King, Jr. Day.
But markets were open elsewhere.
China released their 2021 GDP and reported an 8.1% growth rate, making it the best reading since 2011.
Although, 2022 is expected to come in at just 4.3%, according to Goldman Sachs, which revised their estimate down from 4.8%.
China's official estimate is expected to come in at 5.1%. That's higher than Goldman's forecast, but still lower than China's previous estimate of 5.4%. But using their own numbers, that would still mark the slowest growth pace since 1990's 3.9%.
That's likely why they cut interest rates by 10 basis points on 1-year loans to banks (first cut since April 2020). They could very well do that again later this year, and provide other stimulus to further boost growth.
The Shanghai Composite Index was up 0.6%, but Hong Kong's Hang Seng Index was down -0.7%.
Back in the states, earnings season continues this week. While it has already unofficially begun, it won't officially begin until Alcoa reports earnings on Wednesday, 1/19, after the close.
(BTW, Alcoa is only the so-called 'official' start of earnings season because it was once the first Dow component to report earnings. Just like Hewlett-Packard has been called the official end of earnings season because it used to be the last of the Dow components to report earnings. Ironically, both AA and HPQ are no longer part of the Dow Jones Index. But after bookending earnings season for so long, that tradition has stuck, regardless of their current Dow non-membership status.)
There are 159 companies on deck to report this week. Then another 538 next week. And another 660 the week after that. And even more after that.
Earnings season is always an exciting time for stocks, since stocks typically go up during earnings season.
So if all goes well, we could get our first positive weekly close of 2022 this week.
See you tomorrow,
Executive Vice President, Zacks Investment Research
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