AAP Morning Comments: Markets, UN, Earnings, Economic Data, Omicron

This week we will conclude the month of January, a tumultuous time for stocks, and begin the month of February. Investors will be looking to assess the market's next move and that means combing through the latest barrage of earnings reports and the start of January facing economic data. What they'll be looking to determine is if the worst of the supply chain woes and inflationary pressures are not only behind us but priced into the equity markets, thereby offering potential entry points at far better stock prices vs. ones at the end of 2021. In other words, was Friday's market action the start of a more pronounced rebound, and should they once again buy the dip?

Helping blur the answer, geopolitical tension over Ukraine is poised to continue this week and could become heated as the U.S. and Russia square off at the United Nations Security Council meeting today. Setting the stage for that, on Friday, the U.S. Pentagon said Russia had amassed enough forces to stage a full-scale invasion of Ukraine at a time of its choosing. As that meeting unfolds, reports indicate the Senate is close to agreement on a Russian sanctions bill that could include sanctions even if Russia doesn't invade Ukraine.

Earnings

Getting back to the market, with growth stocks hit hard so far in January, some answers to the question raised above will be found in December quarter earnings from Alphabet GOOGL , Amazon (AMZN) , Meta Platforms FB , and Qualcomm (QCOM) . Following Apple's (AAPL) better than expected December quarter earnings and guidance, investors will be closely parsing those four reports and others for confirmation to Apple CEO Tim Cook's comment that supply chain issues wouldn't be as much of a headwind in the current quarter.

From the likes of UPS (UPS) and Starbucks (SBUX) , we'll want to see to what degree the Omicron variant sapped their workforce, and when they expect to return to normalized staffing issues. UPS should also give us a sense as to what degree the year-over-year surge in fuel prices is becoming a headwind for company profits and 2022 EPS expectations. All told, there will be more than 500 companies reporting this week, but the silver lining is by the end of the week, we'll have a far better picture as to how EPS expectations for the current quarter and 2022 are shaping up.

Economy

On the economic side of things this week, it will be a barn burner of a week for data, but odds are it could be a little wonky given the impact of the Omicron variant. We say that because even the White House is attempting to get ahead of Friday's January Employment Report saying the Omicron variant could make the report "look a little strange." This suggests to us the headline data to be had could raise more than a few eyebrows as well as raise concerns the Fed may be moving too quickly to contain inflation and risk throwing the economy into a tailspin. Fueling that concern, Atlanta Fed President Raphael Bostic recently shared his view the Fed could hike interest rates by 50 basis points "if necessary."

While some may give the data a pass amid signs of Omicron's impact starting to wane and restrictions being lifted, particularly in Europe, we suspect the confluence of supply chain and inflation data from the week's economic reports and company commentary will be the real driver of the stock market this week. That should make monetary policy meetings this week for the Bank of England and the European Central Bank even more interesting than usual.

With markets in Asia closed this week for the Lunar New Year holiday, the prime focus will be on U.S. and Europe, which means when those markets reopen there may just be quite a bit of catch up in their price action.

Action Alerts PLUS is Long GOOGL, AMZN, AAPL, UPS, SBUX.