This is The Takeaway from today's Morning Brief, which you can sign up to receive in your inbox every morning along with:
The chart of the day
What we're watching
What we're reading
Economic data releases and earnings
The stock market's new record high will be challenged in the week ahead by a slew of corporate earnings reports and a fresh reading of the Fed's preferred inflation gauge.
With most financial institutions done reporting, tech results will take center stage with Netflix (NFLX) earnings on Tuesday followed by Tesla (TSLA) on Wednesday. Reports from Johnson and Johnson (JNJ), United Airlines (UAL), Verizon (VZ) and AT&T (ATT) also highlight one of the busiest weeks of quarterly reports on Wall Street.
In economic data, the first reading of economic growth for the fourth quarter is expected on Thursday. Meanwhile, the latest release of the Personal Consumer Expenditures (PCE) Index, the Fed's preferred inflation gauge, is slated for Friday.
All of this will come as stocks trade at or near their highest levels on record. The S&P 500 (^GSPC) closed Friday at 4,839, a new record high for the benchmark average. The Dow Jones Industrial Average (^DJI) also hit a new closing high of 37,863. Meanwhile, tech was the big winner on Friday with the Nasdaq Composite (^IXIC) rising 1.7%. All three of the major averages are now in positive territory for January.
Stocks' rise to new highs on Friday came as consumer sentiment data released from the University of Michigan showed consumers are feeling their best about the economy since July 2021.
The positive vibes from consumers match an increasingly upbeat outlook from Wall Street economists as data has continued to surprise to the upside in January.
In the past week, a check on retail sales in December showed consumers finished 2023 in a better position than many economists feared. And while headlines about layoffs in various sectors have picked up in recent weeks, the hard data measurement of unemployment benefit claims recently hit its lowest weekly level since September 2022.
The resilient data has analysts projecting the US economy grew at a 2% annualized rate in the fourth quarter ahead of the preliminary Gross Domestic Product release expected on Thursday.
The team at Oxford Economics is increasingly confident that the economic expansion isn't set to stop in the year ahead either.
"The odds of a recession have declined over the past several months because of a strong labor market, a deceleration in inflation, and looser financial conditions on the back of the impending Fed pivot to rate cuts," Oxford economics' Matthew Martin and Ryan Sweet wrote in a note to clients on Friday.
"[Oxford's] January baseline forecast included an upward revision to GDP growth this year, a lower peak in the unemployment rate, and stronger consumer spending. Our subjective odds of a recession this year are now less than 50%."
Beyond economic growth, the hottest debate on Wall Street remains when the Federal Reserve will cut interest rates.
As of Friday afternoon, investors are placing a 49% chance on a March interest rate cut, per the CME Fed Watch Tool. Just a week prior, investors had placed an 81% chance on a cut in March.
Many economists believe inflation's path downward will be the key driver in when the Fed does initiate its first rate cut. Goldman Sachs chief economist Jan Hatzius believes the first cut will come in March.
"The driver of rate cuts in our forecast, and I would say in what Chair Powell said in the December press conference, is that inflation is coming back down to the target," Hatzius told Yahoo Finance Live. "If inflation comes back down to the target, there will very likely also be rate cuts because the 5.37% federal funds rate is going to just seem very, very high relative to an economy that's producing a 2% inflation rate."
An update on the inflation story will come on Friday with the release of the PCE index for December.
Economists expect annual "core" PCE — which excludes the volatile categories of food and energy — to have clocked in at 3% in December. Over the prior month, most economists expect "core" PCE to come in at 0.2%.
"The Fed's confidence that inflation is returning to 2% should increase on the back of this report," Bank of America US economist Michael Gapen, who also sees the first cut coming in March, wrote in a note to clients on Friday.
With the Fed in its blackout period ahead of its next meeting on Jan. 30, earnings are expected to be a key driver of stock market sentiment in the week ahead.
For Netflix, the focus will remain on how demand for its new advertising tier and the password sharing crackdown are impacting future growth prospects. At Tesla, margins remain a key focus while investors will also listen closely for any commentary from CEO Elon Musk, who is reportedly seeking more control of the company.
At large, given the average's outsized exposure to large cap companies, how technology earnings perform could indicate where the market heads in the short term.
"Tech showing that earnings and the ability to grow earnings at a good pace, even if we have a step down in growth, is very important to keep this market moving forward," Truist Co-CIO Keith Lerner told Yahoo Finance on Wednesday ahead of tech earnings.
FactSet senior earnings analyst John Butters highlighted on Friday that fourth quarter earnings are currently off to a "weak start." With 10% of S&P 500 companies done reporting, the index is currently trending for an earnings per share decline of 1.7%.
But as Butters points out, this is largely because the focus over the first two weeks of earnings has been financials. In the weeks ahead, the narrative will shift to Technology and Communication Services, where earnings are expected to grow compared to the same quarter a year ago.
Weekly calendar
Monday
Economic data: Leading Index, December (-0.3%, expected, -0.5% prior)
Earnings: United Airlines (UAL), Logitech (LOGI), Zions Bancorporation (ZION)
Tuesday
Economic data: Richmond Manufacturing Index, January (-6 expected, -11 prior)
Earnings: 3M (MMM), Haliburton (HAL), Johnson and Johnson (JNJ), Lockheed Martin (LMT), Netflix (NFLX), Texas Instruments (TXN), Verizon (VZ),
Wednesday
Economic data: MBA Mortgage Applications, week ending January 19 (+10.4% prior); S&P Global US Manufacturing PMI, January preliminary (47.6 expected, 47.9 prior); S&P Global US Services PMI January preliminary (51 expected, 51.4 prior); S&P Global US Services PMI January composite (50.9 prior)
Earnings: AT&T (ATT), Abbott (ABT), Freeport McMoran Copper and Gold (FCX), IBM (IBM), Las Vegas Sands (LVS) SAP (SAP), Tesla (TSLA)
Thursday
Economic data: Initial jobless claims, week ended (200,000 expected, 187,000 previously); Continuing jobless claims, week ended Jan. 13 (1.84 million expected, 1.81 million previously); Fourth quarter GDP, first estimate (+2.0% annualized rate expected, +4.9% previously); Fourth quarter personal consumption, first estimate (+2.2% annualized expected; +3.1% previously); Fourth quarter Core PCE Index, (2.0% annualized expected, 2.0% previously); Wholesale inventories month, December preliminary (-0.2% expected, -0.2% previously); Durable goods orders, December Preliminary, (1.5% expected, 5.4% previously); New home sales, December (647,000 expected, 590,000 previously)
Earnings: American Airlines (AAL), Alaska Airlines (ALK), Capital One (COP) Comcast (CMCSA), Dow (DOW), Humana (HUM), Intel (INTC), Levis (LEVI) Southwest (LUV), T-Mobile (TMUS), Union Pacific (UNP), Valero (VLO), Visa (V)
Friday
Economic news: Personal income, month-over-month, December (+0.3% expected, +0.4% previously); Personal spending, month-over-month, December (+0.4% expected, +0.2% previously); PCE inflation, month-over-month, December (+0.2% expected,-0.1% previously); PCE inflation, year-over-year, December (+2.6% expected, +2.6% previously); "Core" PCE, month-over-month, December (+0.2% expected, +0..1% previously); "Core" PCE, year-over-year, December (+3.0% expected; +3.2% previously);
Josh Schafer is a reporter for Yahoo Finance.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Financ