Equity markets remain under pressure on Monday as investors await the start of the fourth-quarter earnings season for guidance on whether the rally of November and December could be resumed in January.
Last week was the first down week for U.S. stocks following nine-consecutive weeks of gains for the S&P 500 index and for the SPDR S&P 500 ETF (NYSE:SPY), the exchange traded fund that mirrors the index’s moves. After gaining 16% in the most recent stage of a powerful 2023 rally, last week the index lost 1.6%.
Why Are Equity Markets Moving Lower In January?
Several factors are at play here:
Some analysts believe that after a prolonged rally, stock valuations are at levels where profit taking looks attractive
Markets have gotten ahead of themselves on Federal Reserve rate cut expectations, and the likely real pace of cuts are now fully priced in
Geopolitical events, particularly in the Middle East, could yet push up oil prices and add to inflationary pressures
Concerns over economic slowdown have become harder to ignore and investors are now awaiting signals from fourth-quarter earnings reports over whether the rally can be extended
And it is this latter point that will begin to be addressed this week as earnings season begins to pick up pace, with the reports from five major financial services firms on Thursday: Bank of America (NYSE:BAC), BlackRock (NYSE:BLK), CitiGroup (NYSE:C), JPMorganChase (NYSE:JPM) and Wells Fargo (NYSE:WFC).
The big bank earnings are seen as something of a bellwether for the overall earnings season, and it will be their outlooks for 2024 that could either give the green light for the rally to continue, or to keep the brakes on for longer.
“The upcoming earnings season has assumed added significance, given the robust rally that propelled the stock market to close 2023 on a high note,” said Andrew Prochnow at Seeking Alpha.
He added: “This surge has heightened expectations for Q4 earnings, as sustaining all-time highs in the stock market seems improbable if the forthcoming earnings reports fall short of optimistic projections.”
So What Is Expected In Q4?
Expectations aren’t running that high, so significant profit beats could still be possible for the majority of firms that carried some momentum into the final three months of 2023.
But we’ve seen…
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