Big earnings week.

4th quarter earnings are shaping up to be weaker than expected. This week is a big one as many of the mega cap names are scheduled to report. The underlying concern? If earnings continue to weaken with U.S. equity markets at already elevated valuations, it might lead to additional weakness in stock prices during the first half of this year. Still, the economic picture remains relatively strong.

Federal Reserve commentary.

The Fed meets this week to chart their path forward on interest rate hikes. The market seems to be expecting a further slowdown in the rate of future rate increases, with the coming hike projected to be .25%. The real question is not will the Fed act, but rather what they will say about rate hikes in the future? The Fed’s commentary will likely be the fulcrum around which the market swings in the next few days.

Consumer positioning. 

Consumers are still spending and jobs remain plentiful, with the unemployment rate at a historic low. While some large companies have been announcing layoffs, we remain in the middle of a robust job market. The quick ascent in interest rates and the resulting adjustments made by large employers has led to some labor market softening. It also presents the first opportunity for smaller companies to begin filling their high levels of open positions. 

Recession debate continues.

The three economic factors above are causing 2023 economic forecasts to be quite murky. Will the U.S. economy fall into recession territory this year? The answer remains to be seen.