Equity Fundamental Forecast: Mixed

• Earnings have been a source of optimism for equities and the trend may continue if giants like Apple and Amazon impress investors this week
• The DAX will look to Eurozone GDP and German employment data which could provide more insight on a potential German recession
• Italian GDP and Eurozone CPI may also impact the European equity markets beyond the FTSEMIB

AMAZON, MICROSOFT, APPLE AND OTHERS WILL DRIVE US EQUITIES

Last week was relatively stable for US indices as they closed Friday moderately higher than they opened Monday. Despite a prolonged government shutdown that is sapping GDP from the country, domestic indexes pushed higher. Strong earnings from airlines and some chip makers buoyed the broader market while other sectors slipped on global growth concerns. In the week ahead, earnings will look to drive price action once again.

Over 440 corporations will report earnings next week with FAANG members Amazon, Apple and Facebook included. Other corporate behemoths like Caterpillar and Verizon have the potential to sway entire sectors on their own. With that in mind, performances from these companies could greatly influence the overall price action of the market.

Thus far, earnings have been generally positive. Given the concerns of global growth and trade wars, relatively on-target performances seem to be more impressive than in prior quarters, at least from a sentiment perspective. With this new-found leeway, on-target earnings in the week ahead could be all that traders require to continue the recent bull trend even as the January effect wanes. 

S&P 500 PRICE CHART DAILY, FEBRUARY 2018 – JANUARY 2019 (CHART 1)

Another upcoming event for the S&P 500 is Wednesday’s FOMC decision. While a change in the interest rate range is out of the question a change in tone, particularly to the hawkish side, could spell disaster for the US indexes. Luckily for bulls, it seems rather unlikely such a tone would be struck given the government shutdown implications on GDP and the fragile state of the equity markets.

DAX 30 PRICE CHART DAILY, JANUARY 2018 – JANUARY 2019 (CHART 2)

GERMAN DAX LOOKS TO EUROZONE GDP AND GERMAN EMPLOYMENT DATA

As for the DAX, Eurozone GDP and German unemployment figures will command the most respect in the week ahead. Many speculators foresee the German economy entering a recession and the German index has shed over 17% from a recent high. On Christmas Eve, the index was down more than 23% from a year earlier.

View the economic events and data pieces due next week with our Economic Calendar.

If employment data impresses, a bear market could be staved off for some time longer. Similarly, an uptick in Eurozone GDP data could bolster the case for renewed German growth. With gloomy forecasts from the IMF, World Bank and other macroeconomic institutions, such positive surprises may be a long shot.

ITALIAN GDP AND THE FTSEMIB

Elsewhere, other European equity markets will look to Italian GDP data due Thursday and Eurozone CPI on Friday. Italian GDP will be key for the FTSEMIB but also an important data point for other equity markets across the zone as it is one of the economies at risk. Further, the recent debate on acceptable levels of debt-to-GDP acceptable in the Italian economy will exacerbate the importance of this data print.

FTSEMIB PRICE CHART DAILY, MARCH 2018 – JANUARY 2019 (CHART 3)

Finally, Eurozone CPI could provide significant price movement across the continent as a surprise in either direction could spur the European Central Bank to alter policy. While a significant surprise is unlikely, it is an important risk to be wary of.