Markets Tread Cautiously as Investors Await Earnings Season Amid Global Economic and Political Uncertainties

Goldman Sachs defies expectations with a 51% surge in Q4 earnings, China's economic slowdown ripples across markets and Uber may be in need of a drink

• Stability is prevailing in markets post-weekend as investors anticipate upcoming earnings and economic indicators.
• Goldman's surprising earnings surge fueled by wealth management diverges from traditional investment banking strengths.
• After a real estate collapse, The growth China’s gross domestic product has slowed after a collapse in its real estate market, posing global implications.

The stock market was relatively stabile yesterday after a three-day weekend, with the S&P 500 experiencing a modest drop of less than 0.5%,and the Nasdaq Composite showing a decline of around 0.2%. The absence of significant economic data and the anticipation of the upcoming earnings season, set to commence in a week, contributed to an atmosphere of caution and observation in the markets. Despite that, the morning brought stronger-than-expected retail sales data for the fourth quarter, with a 0.6% increase compared to the anticipated 0.4%, and Core Retail Sales showing a 0.4% growth against forecasts of 0.2%.

One ongoing narrative that has captured attention is the situation in the Red Sea, where piracy is affecting oil supply chains. Surprisingly, oil has not responded significantly to the situation, with premarket trading showing a further 2% decline.

Airlines encounter unfriendly skies, while a bank scores an unexpected profit

Boeing (BA) continued its decline, dropping by an additional 8% yesterday and marking a cumulative 34% decrease from its December peak. Meanwhile, a judge intervened to block the proposed $3.8 billion JetBlue (JBLU) acquisition of Spirit Airlines (SAVE). Judge William Young ruled that such a merger would hinder competition, potentially leading to higher prices for consumers.

In the financial sector, Goldman Sachs (GS) reported earnings that surpassed expectations, revealing a remarkable 51% increase in the fourth quarter. Notably, the growth was attributed to the wealth management division—not the the traditional core businesses of investment banking and trading. Goldman's shares experienced a marginal increase yesterday.

Conversely, Apple (AAPL) saw a 1.25% decline, marking an 8% decrease over the last month. The tech giant announced discounted prices for iPhones in China for a limited time in an effort to counter China's preference for domestically manufactured phones.

China itself reported 5.2% growth in gross domestic product for the fourth quarter and full year 2023, which, excluding pandemic-affected years, represented its slowest expansion since 1990. The real estate collapse in China played a significant role in this slowdown, with potential ramifications for companies operating in the region.

Watching the Fed for rate-cut clues

The Federal Reserve remained under scrutiny, with several Fed members scheduled to speak. While the likelihood of unchanged rates at the upcoming Federal Open Market Committee (FOMC) meeting is high, market expectations and Fed statements remain divergent. Fed Gov. Christopher Waller suggested rate cuts are probable, but caution is warranted. Market expectations for a rate cut in March, as indicated by the Chicago Mercantile Exchange (CME), remained over 60%, though down from previous levels of around 80%. Investors are observing Fed communications for clarity on the direction of monetary policy.

Elsewhere, Uber (UBER) announced the surprising shutdown of Drizly, an alcohol delivery company it acquired for $1.1 billion in 2021. This decision perhaps deserves a joke about the need for a drink after the failure of a substantial acquisition.

Exercising the usual caution

As the day began with premarket trading, stocks showed a slight decline, accompanied by a modest increase in volatility. The VIX, a measure of market volatility, had touched 12.35 the previous week and showed a gradual uptick. With the approaching wave of earnings reports, this trend is unsurprising but remains noteworthy as a potential signal of market turbulence. As always, the advice is to adhere to your investment plan and long-term objectives in navigating these market conditions.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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