Earnings and Fed are to set stock market mood next week

Stocks continue to consolidate amid Wall Street's ongoing debate over Q4 earnings prospects and future Fed moves. Investor outlooks are extremely divided as we head into the busiest weeks for earnings, which will include results from the world's biggest companies.

Bulls remain focused on companies' forward guidance which overall are painting a picture of smoother sailing ahead as far as supply chain disruptions, raw materials costs, and even the labor front for many. Bears however are quick to point out that management commentary has also been loaded with warnings about a possible US recession and anxieties surrounding "disinflation" that could hurt companies' pricing power.

Earnings next week

Investors will gain further insights as earnings season starts to really heat up next week.

Top highlights include Baker Hughes on Monday; 3M, Capital One, Danaher, D.R. Horton, General Electric, Halliburton, Johnson & Johnson, Lockheed Martin, Microsoft, Raytheon, Texas Instruments, and Union Pacific on Tuesday; Abbott Labs, AT&T, Boeing, CSX, IBM, NextEra Energy, The Progressive, Tesla, and US Bancorp on Wednesday; Blackstone Group, Comcast, Dow, Intel, Mastercard, Northrop Grumman, Nucor, Sherwin Williams, Valero Energy, and Visa on Thursday; and American Express, Chevron, ColgatePalmolive, and Roper Technologies on Friday. Ally Financial, Ericsson, Schlumberger, and State Street report today.

Fed

On the Fed front, Fed Vice Chair Lael Brainard said yesterday that inflation is still too high but did add that the recent decline raises questions about how far the Fed might need to go. Brainard noted that many of the factors contributing to high prices are poised to fade, which could in turn make it possible to get inflation back to the Fed's target rate without causing significant job losses. Notably, Brainard pushed back on the idea that rising worker wages during the pandemic are driving inflation, a view held by many of her colleagues, including Fed Chair Jerome Powell.

According to Brainard, the wage gains among lower-wage workers were more than offset by real wage declines among middle- and higher-wage workers. She did not comment on questions about the size of future rate hikes, however. If you recall, the central bank did pull back its interest rate hikes in December from 75-basis points to 50- basis points. At least two Fed officials have recently expressed support for slowing the pace further to 25-basis points at the upcoming January 31-February 1 meeting.

Still, other officials this week have said the Fed's rapid rate increases should continue and feel the best course of action is to "err on the tighter side" in order to ensure inflation is truly in retreat.

Most Fed officials do seem to be in agreement over the 5% area being a likely end point to the tightening campaign, then holding there for "some time." For what it's worth, no Fed officials are talking about lowering rates.

Data to watch

The next big test for the Fed's inflation battle comes next Friday with the PCE Prices Index, which is one of the central bank's preferred gauges.

Other key data next week includes the S&P Case-Shiller Home Price Index on Monday; New Home Sales, Durable Goods Orders, and the final estimate of Q3 GDP on Wednesday; and Consumer Sentiment on Friday.

Today brings December Existing Home Sales. It's worth noting that data yesterday showed December Home Starts were -1.4% lower for the month and -22% lower versus December 2021 levels. The number of permits issued fell -1.6% for the month, and -30% from a year earlier.