Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Week Ahead: Q4 Earnings Will Take Center Stage; Cyclical Stocks To Outperform

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewJan 16, 2022 08:07AM ET
www.investing.com/analysis/week-ahead-q4-earnings-will-take-center-stage-cyclical-stocks-to-outperform-200614878
Week Ahead: Q4 Earnings Will Take Center Stage; Cyclical Stocks To Outperform
By Investing.com (Pinchas Cohen/Investing.com)   |  Jan 16, 2022 08:07AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
  • Q4 earnings will test company profitability amid rising costs
  • Economically sensitive sectors expected to outdo tech

After spending recent months fixated on inflation and monetary policy, investors will likely now shift their attention to upcoming Q4 earnings following the official kick-off of the season on Friday.

Analysts expect earnings to upend previous +20% estimates with potential +25%-30% beats. However, cyclical sectors—Energy, Materials, Industrials, Financials, and Consumer Discretionary—could grow by 95% to 100% as the economy accelerates. 

Technology shares, on the other hand, are anticipated to underperform. This shifting market paradigm is seen to continue over coming quarters.

Value Shares Could Lead...If Treasury Yields Continue Rising

We expect the cyclical rotation to pick up as earnings from value sectors outperform returns from growth stocks that tend to lag during periods of economic expansion. To begin with, sectors sensitive to economic cycles are probably better prepared to deal with the sharpest inflation in four decades, which rose 7% YoY during December, the highest since 1982.

To be clear, 'value' stocks are shares that have been neglected in favor of rapidly-rising tech stocks, something that occurred during pandemic lockdowns as COVID-19 initially spread globally before vaccines were introduced. These stocks were overlooked, thereby becoming cheaper even as the market caps for highly popular mega cap tech companies became increasingly stretched.

Now, with lockdowns less of a factor in the US and other countries, upcoming higher borrowing costs due to interest rate hikes are expected to hit companies whose valuations are already lofty.

Though the S&P 500, NASDAQ and Russell 2000 all eked out gains on Friday, the mega cap Dow closed lower to finish out the week.

On a sector level, Energy stocks surged over 5% for the week, making it the clear winner, though that was due more to reduced oil production levels rather than anything related to economic hiccups. The only other sector in the green on a weekly basis was Communication Services, up 0.16%. Technology shares retreated 0.1%, 'outperforming' the remaining red sectors, including those that are economically sensitive.

Also on Friday, major US banks Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and JPMorgan Chase (NYSE:JPM) reported Q4 earnings. As expected, each beat estimates ahead of Fed hikes, but overall investors were disappointed with the results and their shares finished the week mixed.

In particular, JPMorgan tumbled 6% after the bank's CFO said that increasing expenses, including wage inflation, will likely cause the bank to miss its 17% target for returns on capital. We predicted that JPMorgan would decline after its report, albeit based on the technicals.

Will the cyclical rotation scale up in the week ahead? If US Treasury yields continue climbing, we see that as benefiting value stocks.

On Friday, 10-year Treasury yields hit their highest levels since Jan. 17, 2020, before COVID pressured the US stock market. Higher yields result from selling Treasuries, whose falling prices increase the difference with the payout. Rising yields—the result of investors selling Treasuries, whose falling prices increase the level of the payout—are a leading indicator of higher rates, as investors dump bonds with current yields in favor of future sovereign debt with a higher payout. 

UST 10Y Weekly
UST 10Y Weekly

Rates extended a new peak within the rising trend, but found resistance at the 200 WMA.

Surprisingly, the dollar fell after the highest annualized CPI read in 40 years, though it recovered a bit on Friday.

Dollar Daily
Dollar Daily

The USD found support by the 100 DMA but hit resistance at the bottom of the rising channel it fell through after violating the 50 DMA as it completed a Descending Triangle.

Gold Daily
Gold Daily

Gold dropped for a second day, even as the dollar weakened.

Bitcoin has been flat since it moved higher on Friday after confirming a resistance on Thursday.

BTC/USD Daily
BTC/USD Daily

The cryptocurrency appears to have completed a return move to a sizeable H&S top, which included a Death Cross, as the 50 DMA crossed below the 200 DMA. The reversal pattern's implied target is $30,000, putting it on track for an even more significant top. 

Oil output has been lagging, both among OPEC+ countries and in the United States, sending the price of oil up to 1% from its Oct. 26 peak, itself the highest since Oct. 13, 2014. However, that doesn't mean there is no risk for oil prices.

Oil Daily
Oil Daily

WTI closed off its intraday high on Friday, having found resistance by the October-November highs, potentially turning into a complex H&S top.

The Week Ahead

All times listed are EST

Sunday

21:00: China – GDP: expected to fall to 3.6% from 4.9%.

21:00: China – Industrial Production: seen to edge lower to 3.65 from 3.8%.

Monday

 Martin Luther King, Jr. Day, US Markets are closed

Tentative: Japan – BoJ Monetary Policy Statement

Tuesday

2:00: UK – Claimant Count Change: previous print came in at -49.8K.

5:00: Germany – ZEW Economic Sentiment: to rise to 32.7 from 29.9.

Wednesday

2:00: UK – CPI: seen to crawl higher, to 5.2% from 5.1%.

8:30: US – Building Permits: expected to retreat to 1.701M from 1.717M.

8:30: Canada – Core CPI: forecast to remain flat at 4.7% YoY.

9:15: UK – BoE Gov Bailey Speaks

19:30: Australia – Employment Change: to plunge to 30.0K from 366.1K.

20:30: China – PBoC Loan Prime Rate: currently set at 3.80%.

Thursday

5:00: Eurozone – CPI: probably remained steady at 5.0%.

7:30: Eurozone – ECB Monetary Policy Statement

8:30: US – Initial Jobless Claims: expected to slump to 220K from 230K.

8:30: US – Philadelphia Fed Manufacturing Index: to surge to 20.0 from 15.4.

10:00: US – Existing Home Sales: forecast to slip to 6.43M from 6.46M.

11:00: US – Crude Oil Inventories: printed previously at -4.553M.

Friday

1:00: UK – Retail Sales: expected to have dropped to 2.9% from 4.7%.

8:30: Canada – Core Retail Sales: seen to remain at 1.3%.

Week Ahead: Q4 Earnings Will Take Center Stage; Cyclical Stocks To Outperform
 

Related Articles

Week Ahead: Q4 Earnings Will Take Center Stage; Cyclical Stocks To Outperform

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Igor Igolnikov
Igor Igolnikov Jan 16, 2022 9:49AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Pinchas thank you!
Shuma Bedasa
Shuma Bedasa Jan 16, 2022 9:18AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
best
Mohd Izhar Muslim
Mohd Izhar Muslim Jan 16, 2022 8:52AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Was great, thanks for the article 💯
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email