Source: Wall Street News

This week, favorable European and American stock markets are spreading frequently.$S&P 500 Index (.SPX.US)$French and German stock indices have alternately reached new highs, but will the increase in European and American stock indexes continue to face a quadruple test next week.

Driven by improved demand, strong luxury performance, and ECB President Lagarde's “dovish speech,” the three major European stock indexes rose across the board this week. The French CAC 40 index, which is dominated by the luxury goods industry, surged 2.3%, and the German DAX index rose 0.3% to continue to hit a new high during the year.

Driven by the rise in leading technology stocks, the S&P 500 hit a record high for five consecutive days, and the Dow also rebounded to a record high at one point.

Whether the gains in US and European stocks can continue, next week's four major tests are critical:

Test 1: Earnings from US tech giants, pharmaceutical companies, and energy leaders are piling up, accounting for 32% of the S&P 500. FAAMG---$Meta Platforms (META.US)$,$Apple (AAPL.US)$,$Amazon (AMZN.US)$,$Microsoft (MSFT.US)$und$Alphabet-C (GOOG.US)$/$Alphabet-A (GOOGL.US)$They will all announce financial reports. Can AI continue to support the rise in US stocks?

Test 2: The Federal Reserve announced its latest interest rate decision in the early hours of Thursday morning (February 1). Currently, the market is unanimous in predicting that the Fed will keep interest rates unchanged for the fourth time in a row. The real focus of the market is how can the Federal Reserve respond to expectations of interest rate cuts?

Test 3: Before the Federal Reserve announces the interest rate decision, the US Treasury will announce a loan plan for the next quarter, which may be the key to the trend of US debt and the Fed's next steps.

Test 4: America's “Non-Farm Week” tests the employment situation. Economists expect 162,000 new non-farm payrolls to be employed in January, which is a marked drop from 216,000 last month, and the unemployment rate remains at 3.7%.

Test 1: Can AI continue to support the rise in US stocks

As far as US stocks are concerned, the most immediate test is that the US stock earnings season is at its peak. Next week, 32% of the S&P 500 companies will release financial reports, and investors will focus on which companies AI has brought actual benefits.

Five of the seven big tech companies that drove the sharp rise in US stocks for most of last year will release financial reports — Alphabet, Microsoft, Apple, Amazon, and Meta. Currently, their market capitalization accounts for nearly 25% of the S&P 500 index.

Liz Ann Sonders, chief investment strategist at Carson Wealth Management, said: “If profits from these stocks decline, it may have an impact on the overall rise in the market.”

In addition, AMD, which had impressive gains last year, will also announce fourth quarter results, testing the real demand for the chip market.

Analysts expect AMD's revenue to reach US$6.11 billion, up 9.2% from the same period last year. Earnings per share were $0.77, up 11.6% year over year. AMD is making improvements to its artificial intelligence software, and it is expected that cloud providers and tech giants will seriously consider adopting AMD's AI chips.

$Qualcomm (QCOM.US)$The financial report will be released on January 31, betting on whether end-side AI has seen results, and has become the focus of Qualcomm's earnings report.

Test 2: How does the Federal Reserve respond to expectations of interest rate cuts

Next week's most notable interest rate decision is the US Federal Reserve interest rate decision in the early morning of next Thursday (February 1), Beijing time.

Currently, the market is unanimous in predicting that the Federal Reserve will keep interest rates unchanged for the fourth time in a row. However, it is still unclear whether interest rates will be cut in March. How Federal Reserve officials respond to this interest rate meeting is critical to the market's expectations for March interest rate cuts.

Recently, on the eve of a period of silence, a number of Federal Reserve officials retaliated against the market's expectations that the Federal Reserve would cut interest rates by as much as 150 basis points this year, with the intention of cooling down the market. Among them, Federal Reserve Governor Waller said that with the good state of economic activity and the labor market, the inflation rate gradually fell back to 2%, and there is currently no reason to act quickly or cut interest rates quickly.

After the release of important US inflation indicators for December, Wall Street Journal reporter Nick Timiraos, known as the “New Federal Reserve News Agency,” wrote that the US inflation level continued to be moderate in December, providing a possibility for the Federal Reserve to consider cutting interest rates this year.

Further, Timiraos pointed out in the article that the Federal Reserve's policy statement may change next week:

Federal Reserve officials expect interest rates to remain unchanged at next week's two-day policy meeting, and may remove from the policy statement the phrase “the next step is more likely to raise interest rates than cut interest rates.”

Test 3: Will the US job market cool down as scheduled?

In addition to the Federal Reserve's interest rate decision, investors will also welcome US non-farm payrolls data next week, which will also be key data for the market to judge the Fed's next trend.

Previously, the number of non-farm payrolls surged beyond expectations in December, and wage increases exceeded expectations, and the market's expectations for the Fed's interest rate cut in March have cooled down. Currently, economists expect the number of non-farm workers to increase by 162,000 in January, while the unemployment rate will remain at 3.7%.

Brainard, a senior US White House official and former vice chairman of the Federal Reserve, said, “No matter what perspective you look at it from, the US economy is very optimistic. A continued good employment situation means that consumers can continue to fuel the economy.”

The Federal Reserve has already seen initial results in fighting inflation, but the resilience of the labor market and the continued strength of consumption still make the market cautious about future trends in inflation.

Test 4: The US Treasury's debt issuance plan may affect market trends

Investors will also pay attention to the US Treasury refinancing conference. US bond yields are still under upward pressure brought about by the issuance cycle.

The US Treasury Department will release the quarterly Overall Financing Estimate (QRA) on January 29 (Monday) and release details of increasing the bid volume on January 31. Bank of America strategist Michael Hartnett pointed out in the report that the current market forecast is that the US net borrowing amount is 970 billion US dollars. If the debt supply figure requires more than 1 trillion US dollars, it will have an impact on the upward trend of US Treasury bonds.

Since the government announced higher than expected borrowing demand in July last year, which triggered a sell-off of US Treasury bonds, the US Treasury's quarterly refinancing report has always attracted much attention. Tom Simons, a money market economist at Jefferies Financial Group (Jefferies), said, “Who will buy these treasury bonds? It is to be expected that by the end of this month, we may encounter some supply-side resistance.”

Vail Hartman, an American interest rate strategist at BMO Capital Markets, said that the Treasury may increase the bid sales scale for most matured bonds other than 20-year bonds.

Concerns about a surge in the supply of treasury bonds due to deficit spending helped drive up bond yields. The 10-year US Treasury yield has been hovering near the highest level since mid-December last year. Another rise in bond yields will reduce the attractiveness of risky stocks.

Editor/jayden