Precision Driving: Investors Look to Steer Friday’s Rally Past Tough Forecasts for Q4 Earnings

JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo start Q4 earnings season on Friday. We’ll have plenty of Fed speakers and consumer data in the meantime.
5 min read
Photo by Getty Images

Key Takeaways

  • Stocks Start the Week Positive Amid Possible Earnings Headwinds, New Consumer, Inflation Data Expected Later in the Week

  • FactSet Projects First Year-Over-Year Quarterly Profit Drop Since 2020 

  • Checking In on the January Effect 

Shawn Cruz, Head Trading Strategist, TD Ameritrade

(Monday Market Open) Investors kept Friday’s jobs rally rolling this morning despite warning signs that Q4 earnings season could be anything but a party.

Major stock futures indexes were all up slightly.

Wall Street research firm FactSet now estimates S&P 500® companies will report fourth quarter profits down 4.1% compared to gains of more than 31% a year ago. If those projections play out, we’ll see the first year-over-year drop in quarterly earnings since the start of the 2020 pandemic.  FactSet added that at the sector level, nine of the 11 S&P sectors saw a decrease in their bottom-up EPS estimate for Q4 2022 from September 30 to December 31. Only two sectors saw an increase—energy and utilities, both up a respective 2%. 

While far from a conclusion on where the broad market finished an exceptionally tough 2022—we’ll have to wait for the actual company data to determine that—it gets us closer to an answer on a big question that’s swirled around the market most of the year. As inflation began its dramatic climb to 40-year highs and markets turned choppier, many wondered when analyst optimism was finally going to fizzle out. Based on what FactSet sees, the fizzle has begun.

We’ll get our first real look at Q4 when the major banks including JP Morgan Chase (JPM), Citigroup (C), Bank of America (BAC), and Wells Fargo (WFC) set to report on Friday. We’ll have an earnings preview for you later this week on how that might go.

But earnings aren’t the only thing to watch this week. Today we’ll see new data on Consumer Credit and one- and five-year inflation expectations from the New York Fed. Also on Monday, Atlanta Fed President Raphael Bostic is scheduled to speak, as will the Philly Fed’s Patrick Harper and the St. Louis Fed’s James Bullard on Thursday .

Speaking of Thursday, we’ll see another big indicator to rival last Friday’s December Jobs report—December’s Consumer Price Index (CPI). The latest Weekly Jobless Claims figures are due Thursday too. Current forecasts have CPI rising another 0.1% in the final month of 2022, equal to November’s increase. The University of Michigan’s Consumer Sentiment numbers close out the week on Friday—that’s another potentially big indicator on inflation perceptions.

Tomorrow’s wild card could be in Stockholm where Federal Reserve chairman Jerome Powell is scheduled to make a speech around 9 a.m. ET. He’s scheduled to appear at Sweden’s Sveriges Riksbank International Symposium on Central Bank Independence. No press conference is scheduled, but investors may want to see if he goes off-script at any point in any way that could move the market.

Morning Rush

  • The 10-year Treasury yield (TNX) moved up slightly to 3.60%
  • The U.S. Dollar Index ($DXY) moved down 0.32% to 103.55
  • Cboe Volatility Index® (VIX) stood at 21.72, up 2.74% before the open.
  • WTI Crude Oil (/CL) moved up 3.39% to $76.28 per gallon.

Stocks on the Move

Lululemon (LULU) stock was down nearly 10% premarket as the company lowered first-quarter gross market guidance.

Biogen (BIIB) andJapan-based Eisai (ESALY) secured their second government approval of an Alzheimer’s drug. On Friday, the companies announced that the Food and Drug Administration approved their drug lecanemab, which will be marketed under the brand name Lequembi and priced at $26,500 per year. Their first Alzheimer’s drug, Aduhelm, was approved in 2021, but it was initially priced at $56,000, and though the price was later lowered to $28,200, it was not approved for Medicare prescription coverage. The companies will await Medicare’s decision on this latest effort. BIIB finished up 2.82% on Friday, and ESALY gained 4.10%. This morning, Biogen was up another 0.27% in the premarket.  

Costco (COST): Shares gained 7.26% on Friday after meeting revenue estimates for December that were up 7% year over year. Its shares were up 0.44% before the open.

Reviewing the Market Minutes

Friday’s Nonfarm Payrolls Report triggered the first major rally of 2023. With employment growth above consensus but wage growth coming in below expectations, many saw evidence that the Federal Reserve’s policies have finally begun to cool the economy.

It will be interesting to see if that perception sticks past next Thursday’s CPI. 

Here’s how the major indexes performed Friday:

  • The Dow Jones Industrial Average® ($DJI) galloped 700.53 points, or 2.13%, to finish at 33,630.61.
  • The Nasdaq Composite®($COMP) gained 264.05 points, or 2.56%, to end at 10,569.29. 
  • The Russell 2000®(RUT) added 39.61, or 2.26%, to close at 1,792.90.
  • The S&P 500 (SPX) advanced 86.98, or 2.28%, to finish at 3,895.08.

As for Friday’s numbers, the U.S. economy added 223,000 jobs last month, above the expected 200,000 target, but the unemployment rate fell slightly to 3.5%. November’s job growth was revised to an increase of 256,000. Notably, the lower unemployment rate accompanied news that the labor force participation rate rose to 62.3%, though still a percentage point below pre-pandemic levels.

    But the decline in wage growth seemed to start the party after Thursday’s ADP Employment Change report found that annual pay rose 7.3% from a year ago, led by hiring in the leisure and hospitality industry. Friday’s data told a slightly different story. Though average hourly earnings gained 0.3% for the month and increased 4.6% from a year ago, analysts expected respective growth of 0.4% and 5%.  

    The TNX settled lower at 3.56% on Friday, followed by $DXY, which lost 1.08% to finish at 103.91.

    After the close, the VIX stood at 21.13, down nearly 6%.

     With so much positive thinking about the Fed and inflation, by late Friday, the CME FedWatch Tool showed a 76.2% probability of a 25-basis-point hike at the central bank’s next rate announcement February 1. A month ago, those expectations were right at 37%.



    CHART OF THE DAY: WAITING FOR JANUARY. You may’ve heard of the January effect, a phenomenon that occurs when small-cap stocks outperform the market from the end of December through February. Many believe it got its start with money managers buying up stocks to help them outperform their benchmark. But so far, the Russell 2000 (RUT—candlesticks) small-cap index hasn’t shown any real strength against the S&P 500 (SPX—pink) large- and mega-cap index because the relative strength line has basically been flat for about a year. This may suggest that money managers are passing on risk and settling to stay near their benchmarks for at least the first part of 2023. Data sources: Cboe, S&P Dow Jones Indexes. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

    Three Things to Watch

    This Week’s Big Report: December’s CPI arrives ahead of the opening bell on Thursday. The Cleveland Fed’s Inflation Nowcasting tool puts December’s headline CPI at 0.12% month over month and 6.64% year over year. Once CPI is out, consider checking the CME FedWatch Tool to get the latest projection for the Federal Open Market Committee’s next scheduled rate announcement February 1.

    Temps Out, Recession In? Friday’s December Nonfarm Payrolls Report showed that job growth increased in all industry sectors but one—professional and business services. According to the report, temporary help employment fell 35,000 during December and has given up 111,000 jobs since July. A 2011 Richmond Fed report noted that temporary employment is a harbinger of recession because it tends to turn negative before total nonfarm employment—specifically 12 months ahead of a recession based on data collected during the Great Recession. While many believe current economic events are unlikely to match the impact of the 2007–09 economic downturn, missing temporary workers may mean more than extra work for the full-timers left behind.

    M&A: No Longer MIA? After a tough year for global merger and acquisition (M&A) activity in 2022, Goldman Sachs thinks more M&A activity could return as soon as the 2023’s second half. In a recent interview with Reuters, Stephan Feldgoise, global co-head of M&A, said big investors are sitting on cash to fund transactions, and large, profitable firms are looking to diversify but waiting for economic uncertainty to fade. There are “clear headwinds in the first part” of 2023, Feldgoise said. In a separate Goldman podcast, Feldgoise pointed out that sector-focused structured transactions that dominated the M&A landscape in 2022—“split-offs” and spin-offs—will likely continue as companies “simplify” their operations.

    Notable Calendar Items

    Jan. 10: November Wholesale Inventories and expected earnings from Albertson’s (ACI)

    Jan. 11: Expected earnings from KB Home (KBH)

    Jan. 12: December Consumer Price Index (CPI) and expected earnings from Delta (DAL) and Taiwan Semiconductor (TSM)

    Jan. 13: January University of Michigan Consumer Sentiment and expected earnings from JP Morgan (JPM), Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC)

    Jan: 16: Dr. Martin Luther King, Jr.’s birthday observance. Markets closed.

    Jan. 17: January Empire State Manufacturing and expected earnings from Goldman Sachs (GS) and Morgan Stanley (MS)

    Jan. 18: December Retail Sales and Producer Price Index (PPI)

    Jan. 19: December Housing Starts and Building Permits, Philly Fed Manufacturing Index, and expected earnings from Procter & Gamble (PG), Netflix (NFLX), and American Express (AXP)

    Happy trading,




    Helpful Educational Content and Programming

    • Check out our upcoming Webcasts or watch any of our hundreds of archived videos, covering everything from market commentary to portfolio planning basics to trading strategies for active investors. You can also deepen your investing know-how with our free online immersive courses. No matter your experience level, there’s something for everybody.

    • Looking to stay on top of the markets? Check out the TD Ameritrade Network, live programming which brings you market news and helps you hone your trading knowledge. And for the day’s hottest happenings, delivered right to your inbox, you can now subscribe to the daily Market Minute newsletter here.

      TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc., are separate but affiliated subsidiaries of The Charles Schwab Corporation. TD Ameritrade Media Productions Company is not a financial advisor, registered investment advisor, broker-dealer, or futures commission merchant.


    Key Takeaways

    • Stocks Start the Week Positive Amid Possible Earnings Headwinds, New Consumer, Inflation Data Expected Later in the Week

    • FactSet Projects First Year-Over-Year Quarterly Profit Drop Since 2020 

    • Checking In on the January Effect 

    Related Videos

    Call Us

    Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

    Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

    TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services. Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.  unaffiliated companies, and are not responsible for each other’s policies or services.  

    Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.


    Market volatility, volume, and system availability may delay account access and trade executions.

    Past performance of a security or strategy does not guarantee future results or success.

    Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

    Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

    This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

    TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2023 Charles Schwab & Co. Inc. All rights reserved.

    Scroll to Top