After a volatile start to the year, investors are keenly awaiting full year results due soon from US tech giants such as Google, Amazon and Meta (formerly known as Facebook).
Devon Funds head of retail Greg Smith said last year's growth was signficant, particularly for companies benefiting from the pandemic.
"That growth is starting to moderate and valuations have come off," he said.
Although the Nasdaq had corrected, with the index down more than 10% from its highs last November, prices remained elevated.
"Where that is the case I think investors are becoming more choosy. There's a real pressure on these names to deliver."
"We saw this last week with Microsoft and Apple coming out with good earnings numbers and their share prices reacted accordingly. We also had Tesla throw a bit of a spanner in the works with [founder] Elon Musk declaring there would be no new models this year and you saw a bit of a savage reaction, despite an earnings peak, so expectations aren't just with respect to the bottom line, or the top line, it's also about the outlook."
Alphabet, Meta, Amazon
Google parent Alphabet reports earnings for the quarter and year ending December 31 after market close on February 1, US time. Meta reports the following day and Amazon on February 3.
The US Federal Reserve's actions on interest rates would also be an influence on markets, said Smith.
Last week’s Open Market Committee meeting was one of the most highly anticipated due to inflation concerns.
“Really it's because you saw that pivot last year from officials saying inflation was going to be temporary ... to actually it's going to stick around and we need to act. It was flagged last year that interest rates were going to rise, it was just a question of how much? How quickly? And when that process would start,” Smith said.
The Fed's statement carried a more hawkish tone, saying "it will soon be appropriate to raise the target range for the federal funds rate" and flagged an end to its net asset purchases in early March.
However, "I think there was still a little bit of uncertainty about a few things and I don't think it's necessarily been resolved, but that may hang over the markets in the coming weeks, if not months," said Smith.
US economy still strong
The good news was the US economy was still going strong.
"It goes to the Fed's view the economy can handle interest rate rises and perhaps as soon as March."
New Zealand
Locally, Smith said the market largely took the recent move to a Covid red traffic light with the Omicron outbreak in its stride.
"It was more last week about the Fed decision."
While New Zealand isn't handling Covid-19 in the same way Australia has done, Smith said the country could learn from other nations about living with the virus now there was a high percentage of double-vaccinated people.
"That gives a bit of a hint of where we're going and that move to red has probably complicated the picture a little bit for the border re-opening."
Stats NZ released the consumer price index last Thursday and inflation came out at 5.9%, a three decade high.
The key drivers of inflation came from the construction sector with prices for new houses increasing 16% from last year, and petrol was up 30% over the last 12 months. Brent crude oil hit the high price of $90 a barrel for the first time since 2014 so the country could be heading towards $3 a litre for fuel according to the AA.
Russia/Ukraine
The tense border situation between Russia and Ukraine is one of the factors contributing to inflation and petrol prices.
“Geopolitical tension always finds its way into stock market calculations,” Smith said.
The threat of European sanctions is quite low due to the regional reliance on Russian gas, but Russia deciding to flex its muscles could create an uncomfortable geopolitical situation.
Data releases
Locally, this week Smith is keeping an eye on the trade numbers and unemployment rate, due for release on Tuesday and Wednesday respectively.
"No change is expected [on unemployment]," said Smith, "but it's going to confirm at under 4% New Zealand is in a pretty good place economically despite closed borders."
The GlobalDairyTrade auction results, due overnight on Tuesday, will also be in focus.
The previous event on January 18 reported the dairy price index up 4.6% to 1397, its highest since March 2014.
"Obviously the dairy sector has done quite well and you had Fonterra last week lifting the farm gate milk price range. It's good for dairy farmers but it's also going to add about $14 billion to the economy."
