The red-hot rally in the U.S. stock market has cooled off a bit, as the S&P 500 fell 1% for its biggest weekly decline since August. It's only the second time this benchmark has fallen in the past nine weeks.
Meanwhile, oil prices have been slumping. The price of U.S. West Texas Intermediate crude, one of the commodity's primary benchmarks, has tumbled about 11% so far this year to the lowest level since October.
The declines for both oil and stocks have been blamed on concerns about an economic slowdown in China related to the spread of a related to the deadly coronavirus.
Earnings season will have a lot to do with whether the stock market can rebound to new highs again. In the week ahead, over 130 companies in the S&P 500 report results for the fourth quarter. In addition, the Federal Reserve convenes for its first meeting of the year, though traders don't expect any change to interest rates at this time. And Wall Street will get its first glimpse of gross domestic product growth for the fourth quarter, along with reports on the housing industry and consumer confidence.
Here's what to watch in the stock market during the week ahead — and how the news could affect your bottom line.
What's happening: The decline in crude oil has been fueled by fears about how demand will be affected by the coronavirus outbreak. It comes after prices rose in December, partly boosted by optimism that a trade deal between the U.S. and China would encourage global economic growth and demand for oil. The commodity say its biggest one-day decline since July.
Why it matters: Professionals on Wall Street closely monitor the change in oil prices because the commodity can have a broad economic impact. And traders use oil prices as a barometer to predict a recession, since economic growth is associated with more demand for fuel.
Even so, the decline in oil prices isn't visible at the pump yet. The average price of a gallon of gas nationwide is down less than 2 cents from a month ago.
What it means for you: A more sustained drop in oil prices could benefit drivers. However, if prices are falling because traders are worried about the pace of global economic growth, that will also affect the stock market — and eventually your portfolio.
What's happening: The coming week will be the busiest of earnings season, or the period when publicly traded companies report results for the most recent quarter. More than 50 companies are scheduled to report on Thursday alone. This week's earnings calendar includes big names like Apple, Visa, McDonald's, Microsoft, and Caterpillar.
Why it matters: Wall Street is bracing for reports that show profit growth slowed for the fourth straight quarter. That said, among companies that already have disclosed results, about 70% have beaten analyst expectations, FactSet data shows.
Traders will also be keen to hear what executives forecast for upcoming quarters to see if they're concerned that profit will slow even further.
What it means for you: Expect some swings in the market in the weeks ahead as investors react to earnings reports. Certain individual stocks — Travelzoo, Netflix, and Skechers, for example — tend to be volatile, with average one-day changes in excess of 10% after they report earnings, according to data from Bespoke Investment Group.
Traders will focus on the Fed's meeting this week because they're awaiting clues to try to predict policymakers' next steps in the year ahead. A small but growing number of traders think the Fed's next move could actually be a rate hike, with a nearly 13% chance of that happening at the upcoming meeting or the one in March. They don't see a similar probability of a rate cut happening until at least April.
The busy week of earnings could also create some short-term bumpiness. Even if the stock market's gains slow in 2020, as experts expect, it's smart to stay invested for the long term, focus on ways to manage risks, and resist the urge to sell investments based on short-term events.
In fact, any turbulence in the market can be a good opportunity to buy stocks at lower prices. Continually adding to your portfolio over time, a strategy known as dollar-cost averaging, can help to smooth out the price you pay for your investments. And no matter what happens in any given week, it's important to keep perspective and remain consistent with your investment strategy.
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