U.S. equity markets surged on Friday following the latest nonfarm payrolls report, which showed wage growth decelerating in December, suggesting progress in the Federal Reserve’s efforts to tame inflation. For the week, the Dow and S&P 500 rose 1.5%, while the Nasdaq gained about 1%. U.S. Treasury yields fell steeply, with the yield on the 10-year note falling nearly 30 basis points (bps) this week and trading below 3.6% on Friday. The yield curve remains deeply inverted, with the yield on the two-year note trading just under 4.3%. Crude oil prices tumbled over 7% this week, as a rebound in COVID-19 cases in China clouded the outlook for global demand. The price of West Texas Intermediate (WTI) crude—the U.S. benchmark—fell to a three-week low of $73 per barrel.

Next week, market watchers can expect the latest consumer inflation figures, as the Bureau of Labor Statistics (BLS) will release the Consumer Price Index (CPI) for December on Thursday. Corporate earnings season kicks off next week, with earnings reports expected from big banks and the financial sector. JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and BlackRock are scheduled to report on Friday. Other major companies, including Taiwan Semiconductor Manufacturing Company, UnitedHealth Group, and Delta Air Lines will also report earnings next week. The University of Michigan’s Consumer Sentiment Index (MCSI) will provide an update on consumer confidence on Friday.

KEY TAKEAWAYS

The Bureau of Labor Statistics (BLS) will release the Consumer Price Index (CPI) for December on Thursday, providing the latest update on consumer inflation.
Earnings season kicks off next week with earnings from big banks and financial firms, with JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and BlackRock all reporting on Friday.
Other companies reporting earnings next week include Taiwan Semiconductor Manufacturing Company, Delta Air Lines, and UnitedHealth Group.
Also on Friday, the University of Michigan will release its preliminary Consumer Sentiment Index (MCSI) for January.

The Latest Inflation Figures

On Thursday, the Bureau of Labor Statistics (BLS) will release the Consumer Price Index (CPI) for December, offering the latest update on consumer inflation in the U.S. Prices likely rose 0.1% last month, matching November’s gain. On an annual basis, price growth is anticipated to have decelerated to 6.5%, down from 7.1% in December and compared to a 40-year high of 9.1% in June. This would mark the slowest annual inflation rate since October of 2021. A sharp deceleration in inflation could have significant implications for the Federal Reserve’s rate-setting agenda, as Fed officials may consider easing their monetary tightening campaign ahead of the next meeting of the Federal Open Market Committee (FOMC) at the end of January.

Financial Sector Earnings

Corporate earnings season begins next week with earnings from big banks and financial institutions. Financial firms including JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and BlackRock are scheduled to report fourth-quarter earnings on Friday. We can also expect earnings reports from Taiwan Semiconductor Manufacturing Company, UnitedHealth Group, and Delta Air Lines, among others.

Next week’s earnings reports from the financial sector could offer clues as to how the Federal Reserve’s rate hikes are impacting banks’ profitability. Banks tend to benefit from rising interest rates, as their net interest margins—the difference between interest income earned through investments and interest payments to customers—tend to improve.

Fourth-quarter earnings for S&P 500 companies are projected to have declined 4.1% last quarter amid growing concerns about a recession in the U.S. as interest rates rise, according to FactSet. If this estimate holds, it would mark the first annual decline in earnings since the third quarter of 2020, when earnings fell 5.7% from a year earlier.

Of the companies issuing EPS guidance, 65 have issued negative guidance while just 35 have issued positive guidance. Analysts’ estimates for earnings growth have been downgraded steeply in recent months. In late September, the median projection for fourth quarter earnings growth stood at 3.5%.