Outsized moves from tech giants Alphabet (+7.3%), Facebook/Meta Platforms (-26.4%), and Amazon (+13.5%) dragged the market along with it, best illustrated by the NASDAQ Composite's yo-yo finish to the week. A surprisingly strong U.S. jobs report also suggested continued strength in the economy, while oil climbing to 7-year highs and cryptocurrencies back on the upward march are a reminder of the inflation hedge trade. The end result was a 1.5% rise for the S&P 500 on the week, with the Nasdaq up 2.4% and the Dow Jones Industrial Average up 1%.
Which sets us up for a week with a CPI report and a slew of earnings reports. Many will be watching the Russia-Ukraine conflict as well, with its obvious geopolitical import as well as direct effects on the commodity sector.
Here’s what you need to know to start your week:
U.S. CPI Report
January saw the U.S. add 467K jobs, surprising economists and analysts who expected that the Omicron variant disruption might have a deeper impact. It’s a reminder of how much of the U.S. has decided COVID-19 is not a cause of huge concern, and also that the U.S. economy is fairly hot. Thus inflation.
The CPI and Core CPI Report come out Thursday pre-market. Economists expect CPI to come in at a .5% increase month over month and 7.3% year over year, with core CPI (excluding food and energy prices) also expected at .5% month over month and 5.9% year over year. With rumblings that the Fed might not only hike four times this year but also jump straight to a 50 basis points hike in March, this report will have real weight.
Earnings read-through part 1 – pandemic related effects
One way to read Meta Platforms’ muted guidance and earnings report was as a new sign that pandemic-related tailwinds are gone for tech companies. Amazon’s rebound after its reports was as much about the worst already being priced into the shares, as the company took a big hit in Q3.
We’ll continue to get read-throughs on both “Covid plays” and “reopen plays” this week, with the following companies reporting:
Peloton’s report will get extra attention with news breaking of Amazon’s purported interest in the fitness equipment and subscription company, which is at least a sign that Peloton could be up for sale. Uber will also have an investor day on Thursday morning following its report, which will be closely watched.
Earnings read-through part 2 – inflation effects
The other big story to watch across this earnings season is the impact of inflation on different companies. We have companies from the materials sector, consumer goods and food, and healthcare reporting, all of which should add to the picture of how widespread inflation is and whether there are signs of easing ahead, whether supply-chain related or otherwise.
This batch of companies includes:
Diplomatic efforts and military maneuvering is set to continue between Russia and Ukraine as well as Western countries. Reuters reports that French President Emmanuel Macron is set to visit Russia to speak with President Vladimir Putin Monday and Tuesday, while the Washington Post reports that U.S. President Joe Biden is scheduled to meet with German Chancellor Olaf Scholz on Monday. This comes after reports of a briefing given by the Biden administration to U.S. congress officials that Russia has built up 70% of the necessary force to invade Ukraine entirely, though the briefing did not affirm that would be Russia’s final decision.
The stakes for Ukraine and then Russia and the broader geopolitical landscape are significant, and from the market perspective, the price of Oil – which crossed the $90/barrier for the first time since 2014 as it continues its recent ascent – and natural gas will be in focus and susceptible to any resolution or escalation.
Cryptocurrencies revving up again
Cryptocurrencies were an asset class that appreciated the turn of the calendar page. After losing nearly 20% in January, Bitcoin has risen nearly 8% in February, and Ethereum has risen nearly 12%.
As ever, the question is what will be the incremental driver of price performance in the sector. The rebound has timed pretty closely with the Nasdaq’s (at least temporary) bottom from the January correction, suggesting that crypto performance – and maybe tech stocks too? – is just an output of risk appetite. With another part of the rationale for bitcoin, at least, being its use as an inflation hedge, the CPI report may have be the next catalyst, for higher or for lower.