It could be a wild week for the stock market and economic reports

Welcome back to Axios Business. Catch last night's episode of "Axios on HBO?" Here's a clip of my colleague Felix Salmon interviewing Kristalina Georgieva, the new managing director of the IMF:

Go deeper: The Axios YouTube page is full of clips from the episode, which you can also watch in full on any of HBO's platforms.

• Also, catch the hottest headlines from the episode directly on the Axios site.

On to the news of the day — let's start with a situational awareness:

• The S&P 500 closed at a record high for the first time in months.
• Saudi Arabia's "Davos in the Desert" has finally released its agenda — just hours before the controversial conference is set to begin.
• The EU has accepted the U.K.'s request for a Brexit extension until Jan. 31, 2020.

For more on the news of the day, sign up for one of our Axios newsletters.

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1 big thing: It could be a wild week for the stock market and economic reports

By: Dion Rabouin ? Newsletter: Axios Markets (sign up here)

Photo: Drew Angerer/Getty Images

This week will set the table for the fourth quarter in what's been a wild and highly unusual year. The stock market has risen more than 20% in 2019, but that's largely been because of a recovery from December's selloff in the first quarter.

The big picture: "Everybody’s squared up" in anticipation, says Ellis Phifer, market strategist at Raymond James. But this week has the potential for "all hell to break loose."

What's happening: In addition to Friday's all-important U.S. nonfarm payrolls report, investors will digest a massive chunk of earnings reports and hear from three major central banks.

• 156 S&P 500 companies, including six members of the Dow 30, are scheduled to report third quarter earnings results, FactSet notes.
• Germany and the U.S. will report important jobs and manufacturing data, with both countries bracing for weak readings.
• The Fed, the Bank of Canada and the Bank of Japan will each announce policy decisions, with the Fed and BOJ expected to loosen their current policy stances.

Between the lines: If the Fed doesn't cut interest rates or deliver hawkish forward guidance on Wednesday, it will weigh heavily on the market, which sees a 90% likelihood of a cut this month and expects more in 2020.

• Conversely, a dovish signal could power the market higher, especially in light of the increased pace of corporate buybacks announced in Q3.

The intrigue: Investors have a lot of dry powder — data from the Investment Company Institute shows more than $160 billion has been pulled from equity mutual funds and ETFs this year while money market funds, which are effectively savings accounts, have swelled to the highest level since 2009.

• "The gap between US equity fund flows relative to bond and cash funds during the past 12 months is the widest since 2008," Goldman Sachs research analysts said in a note.

By the numbers: Companies reporting this week are coming in with low expectations.

• Nine of the S&P's 11 sectors are reporting a year-over-year decline in their net profit margins and the index's forward P/E ratio is currently 17, above both the five- and 10-year averages.
• However, 80% of companies who have reported earnings so far have beaten estimates.

The bottom line: The stock market has risen on just about any form of good news this year and has rallied after bad news. But, with little faith in the U.S.-China phase 1 trade deal, a new catalyst is needed.

Go deeper: Corporate buybacks and the Fed could power stocks higher this year

Sign up for Dion’s Markets newsletter to find out what happens with the stock market this week.

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2. Microsoft's Pentagon cloud contract win opens new political battles

By: Ina Fried ? Newsletter: Axios Login (sign up here)

Illustration: Lazaro Gamio/Axios

Friday's announcement that the Defense Department chose Microsoft over Amazon for a huge cloud computing contract will set two new battles in motion — one procedural and one political.

Why it matters: Amazon's lawyers will likely challenge the decision, while 2020 Democratic candidates will line up to charge the Pentagon with putting its hand on the scales to please President Trump.

The big question: What degree did politics play a role in Microsoft's win?

• Trump's animus toward Amazon and Jeff Bezos is well documented.
• A new book reports that Trump told former Defense Secretary Jim Mattis in summer of 2018 to "screw Amazon" out of the deal.
• Mattis reportedly rebuffed the president — but he's gone now, and Amazon lost.

For Microsoft, the huge victory is also likely to renew debate among employees over the company's government work, particularly defense and immigration contracts.

• Microsoft President Brad Smith has made it plain that the company will continue doing work with all parts of the government, including the military.
• One new issue: Microsoft invested in an Israeli startup that uses facial recognition for surveillance of Palestinians in the West Bank, according to NBC News. "If we discover any violation of our principles, we will end our relationship," the company told NBC.

An Amazon challenge seems inevitable — and it might even get a boost from Congressional investigators.

• "It's crystal clear here that the president of the United States did not want this contract to be awarded to one of the competitors," Franklin Turner, an attorney with the law firm McCarter & English, told the Washington Post. "It's a virtual guarantee that Amazon is going to pull out all the stops to check the government's math on this one."

What they're saying:

• Microsoft: "We brought our best efforts to the rigorous JEDI evaluation process and appreciate that DOD has chosen Microsoft. We are proud that we are an integral partner in DOD's overall mission cloud strategy."
• Amazon, per GeekWire: "We're surprised about this conclusion. AWS is the clear leader in cloud computing, and a detailed assessment purely on the comparative offerings clearly leads to a different conclusion."
• Conservative lawyer and Trump critic George Conway, on Twitter: "This is impeachable."
• Box CEO Aaron Levie, on Twitter: "Cloud computing. Government procurement conspiracies. Revenge. For all of us in enterprise software, this is about as exciting as it gets."

Between the lines: The contract, a 10-year deal to put a big chunk of the Defense Department's current and future computing needs into the cloud, was controversial even before this point.

• The Pentagon's choice to go with a single vendor rather than multiple providers drew complaints last year from critics who said it favored Amazon.
• The Defense Department's criteria led to both Oracle and IBM being declared out of the running. Google withdrew as well.
• Some GOP congressmen had also asked the president to delay the awarding of the contract until the possibility of a pro-Amazon bias could be further investigated.
• Microsoft, for its part, tried to keep its head down and add required capabilities and certifications to its cloud systems — a number of which it didn't have 18 months ago — in order to be eligible to win the bid.

My thought bubble: The decision is yet another sign that Microsoft is winning the techlash.

The bottom line: By politicizing an essentially bureaucratic and technical decision with his attacks on an individual company, Trump insured that this process would be a mess — and a no-win choice for the Pentagon.

Go deeper: Microsoft wins Pentagon's $10 billion cloud computing contract

Sign up for Ina's daily newsletter Axios Login for more on the biggest tech news.

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3. Private equity's other stake in surprise medical bills

By: Bob Herman ? Newsletter: Axios Vitals (sign up here)

Illustration: A?da Amer/Axios

Private equity firms don't just own physician firms and air ambulances that would be most affected by eradicating surprise bills. They also hold stakes in the companies that help health insurers determine what they should pay for out-of-network care.

Why it matters: Private equity has its footprint all throughout health care, but these financial firms especially have a lot on the line in Congress.

By the numbers: Seven major companies — CareCentrix, MedRisk, MultiPlan, naviHealth, One Call, Paradigm and Zelis — are hired by insurers to handle "health care cost containment," which includes things like bill editing and renegotiating out-of-network claims, according to Moody's Investors Service. 

• Private equity owns a slice of each, and Moody's anticipates the aggregate annual revenue of these companies will reach $8 billion by 2020.
• Two of those companies, MultiPlan and Zelis, are most directly involved with out-of-network claims and have the most to lose from any changes.

The big picture: Everything hinges on Congress' leading solution, which would use a benchmark rate to pay out-of-network providers.

• "Should the new legislation set benchmark pricing, repricing claims would become de facto irrelevant, making part of these companies' business models obsolete," Moody's analysts wrote.

Yes, but: Because some of these companies already handle medical bill negotiating between providers and insurers, they "could play an active role in setting benchmark pricing for the industry and could even monetize their expertise," Moody's wrote.

• "This would lessen the adverse impact of new legislation."

Go deeper: Private equity maximized profits while sick children were neglected

Sign up for Axios Vitals to read more from Bob on private equity and surprise medical bills.