Markets could be volatile and looking for a catalyst in the week ahead as investors eye year-end trading in the lull ahead of the Federal Reserve’s Dec. 13-14 policy meeting. Stocks were higher last week, with the worst performing sectors of the year, communication services and consumer discretionary companies, leading the gains. The S&P 500 ended at 4,071, up 1.1% on the week. “We’re in the Fed quiet period,” said Michael Arone, chief investment strategist at State Street Global Advisors. “We are between earnings seasons. I think the things that will drive market action will be geopolitical as well as key economic data.” November’s strong jobs report weighed on stocks and pushed Treasury yields higher as investors feared the central bank would raise interest rates and hold them for longer. There were 263,000 jobs added in November, but markets reacted more to the 0.6% jump in average hourly earnings, which was double expectations. “In terms of economic data, investors have Goldilocks on their vacation list,” Arone said. “They’re looking for data that’s not too hot, which would prevent the Fed from raising rates, and not cold enough to suggest the economy is heading into a recession.” In the week ahead, there will be November’s ISM Services data on Monday, and November’s Producer Price Index and December’s Consumer Sentiment on Friday. There are only a few wins, including Costco and Lululemon Athletica, both on Thursday. On the political front, Arone said investors will be watching the December 6 senatorial runoff in Georgia. Incumbent Senator Raphael Warnock is defending his seat against retired Republican footballer Herschel Walker. The result will not change the balance of power in the Senate because, even if Walker wins, each party would have 50 senators. In this case, Vice President Kamala Harris would have a deciding vote in the event of a tie. “I don’t think it will have a big impact. Once it does, there’s this view that the lame congressional session could potentially move some things forward in terms of spending,” Arone said. “I think that will become the focus and the risk here for the market is if they are not able to trade these things in the lame duck session.” The European Union’s ban on Russian-shipped oil takes effect Dec. 5 and that, along with Sunday’s OPEC+ meeting, puts the spotlight on crude prices over the coming week. China will also remain a focus, after protests erupted last week against Covid-19 restrictions. The market could react to “all the headlines coming out of China, certainly Ukraine-Russia. Russia is stoking tensions again,” Arone said. “My point is that next week it will probably influence market action more because earnings and the Fed are much more inactive.” End of year gathering? Hopes were high for a year-end Santa Claus rally, but strategists say it could be a draw now, depending on the next major report on inflation, the consumer price index of November which is expected on December 13 and the Fed meeting. finish the next day. Strategists have already released their outlook for 2023, and many are expecting a tough first half, possibly including a retest of October lows as the Fed continues to hike rates, forcing the economy to weaken. In the second half of the year, an improvement is expected in the market and the central bank should be on hold. Lori Calvasina, head of US equity strategy at RBC, said the market may already share that view. “Everything that everyone talks about for the next year, you start reacting in December,” she said. Therefore, investors will focus heavily on economic news. “On the one hand, I think equity investors would like to see evidence of economic resilience, but they don’t want to see too much of it. They want to see the Fed back down,” Calvasina said. “It shows that we’re still anchored at the Fed, and the Fed’s kind of mid-trajectory is still one of the main drivers of the market right now.” Calvasina has a 2023 target of 4,100 on the S&P 500, not far off its current level. She said investors need to be selective, and while tech has some good places to invest, not all is good at this point. “I like classic technology,” she said. “I like the big mega-cap software, the semis, the hardware names. It’s all the companies that help other companies get through tough environments. They’re going to have their issues. They’re going to take their shots…but longer term there’s still a lot of appeal.” Calvasina also recommends energy and some names in the industry, but her focus now is on small caps, which she expects to see outperform. Calendar for the coming week Monday Earnings: Sumo Logic, Gitlab 9:45 a.m. PMI Services 10:00 a.m. ISM Services 10:00 a.m. Factory Orders Tuesday Earnings: Autozone, Signet Jewelers, Dave and Buster’s, Stitch Fix, Smith and Wesson, Casey’s General Stores, Toll Brothers 8 a.m. International Trade Wednesday Gains: Brown-Forman, Campbell Soup, United Natural Foods, Thor Industries, John Wiley, Vera Bradley, Rent the Runway, GameStop, C3.ai, Verint Systems 8:30 a.m. Productivity and Costs 3:00 p.m. Credit to consumption Thursday Earnings: Lululemon Athletica, Express, Broadcom, Costco Wholesale, Cooper Cos., Chewy, Hovnanian, Ciena, Vail Resorts, DocuSign 8:30 a.m. Initial UI claims 10:00 a.m. Quarterly Service Survey Friday 8: 30 a.m. PPI 10 a.m. Consumer sentiment 10 a.m. Wholesale trade
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