Stocks waver as big earnings week begins

US stocks gained Monday as investors braced for a jam-packed week of corporate earnings and contemplated the Federal Reserve’s next rate move ahead of the central bank’s meeting later this month.

The S&P 500 (^GSPC) advanced 0.9%, while the Dow Jones Industrial Average (^DJI) added about 240 points, or 0.7%. The technology-heavy Nasdaq Composite (^IXIC) again led the way higher, rallying 1.5%.

All eyes were on Salesforce (CRM) Monday morning after the news hedge fund Elliott Investment Management has taken a multibillion-dollar activist stake in the software giant. Shares advanced 2.6% at the start of trading.

“Salesforce is one of the preeminent software companies in the world, and having followed the company for nearly two decades, we have developed a deep respect for Marc Benioff and what he has built,” Elliott managing partner Jesse Cohn said in a statement. “We look forward to working constructively with Salesforce to realize the value of befitting a company of its nature.”

Elsewhere in early moves, Spotify Technology (SPOT) shares rose roughly 5.8% early into the session after the company confirmed the music streaming platform will cut 6% of its workforce, adding to a growing bout of cost-trimming layoffs across the technology sector.

The moves Monday morning come after the S&P 500 and Nasdaq rallied toward a winning week on Friday, regaining their footing after two downbeat sessions. The Dow lagged for the week, falling just less than 2%.

Tech stocks have so far led an uptrend across US equities that’s kicked off the year, with the Nasdaq gaining more than 6% in January so far.

On the economic side, despite messaging from Federal Reserve that interest rates will move above 5%, markets have cheered officials another expected downshift to a smaller hike in February after some weaker economic data points. The CME FedWatch Tool, which serves as a barometer for imminent Fed rate and US monetary policy, shows markets are pricing in a 99.8% chance of a 25-basis point Feb hike. 2.

The US dollar index, as well as US Treasury yields, retreated Monday morning on these expectations.

The bets were also further bolstered by a weekend piece by Wall Street Journal reporter Nick Timiraos that said officials are preparing to slow down from 50 basis points in December to 25 basis points at their next policy-setting meeting Jan. 31-Feb. 1.

A person walks by the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

Investors are also entering the throes of what appears to be a murky earnings season. Market giants including Microsoft (MSFT) and Tesla (TSLA) are scheduled to report results this week, along with dozens of other big names. The days ahead will also be packed with economic data, with a reading on gross domestic product (GDP) for the fourth quarter due out Thursday.

Of roughly 11% of companies in the S&P 500 index that have reported fourth-quarter earnings to date, just 67% have seen earnings per share come in above estimates — below the five-year average of 77% that typically do — according to data from FactSet Research. Moreover, Wall Street analysts have been downwardly revising estimates.

History shows, however, that stocks are more inclined to rise in years when earnings fall than not.

“This may seem counterintuitive, but it makes sense when we remind ourselves that markets are forward looking,” LPL Financial Chief Equity Strategist Jeffrey Buchbinder notes. “The markets generally price in earnings declines well before they happen—maybe two or three quarters ahead. By the time earnings declines are in the books, stocks have moved higher in anticipation of the next earnings upcycle.”

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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