Critical time for the stock market: what you need to know about the Fed, earnings and GDP

So much for the summer doldrums.

Equity investors face a full menu of market-shaking events this week, including a deluge of corporate earnings, the prospect of another Federal Reserve rate hike and closely watched economic data.

“This week will be very busy, with almost 50% of the S&P 500 market capitalization reporting. [Fed’s] policy meeting, which ends on Wednesday, and the 2nd quarter GDP (gross domestic product) advance estimate for the United States, which will be released on Thursday, could also add to market volatility,” said Mark Haefele, director investments at UBS Global Wealth. Management, in a note.

Flood of profits

There are 175 S&P 500 companies set to report results this week, including tech-related behemoths Apple Inc. AAPL,
-0.74%,
Google parent Alphabet Inc. GOOG,
-0.14%

GOOGL,
-0.36%,
Microsoft Corp. MSFT,
-0.59%
and Amazon.com Inc. AMZN,
-1.05%.

“Investors won’t want to touch Nasdaq stocks until we hear from Alphabet [Tuesday] and if they don’t like what they’re hearing, they can wait to see Thursday’s massive results from Apple and Amazon provide reason to be bullish with tech stocks,” said analyst Edward Moya. market leader for the Americas at Oanda, in email comments.

Revenue monitoring: Big Tech earnings are poised to determine market direction

The Fed

The Federal Reserve’s Open Market Committee will conclude a two-day meeting on Wednesday that is expected to produce a rise of 75 basis points, or three-quarters of a percentage point.

“The Fed’s decision and comments around this economic data is the most powerful element of the week. Uncertainty is high about the Fed’s willingness to continue tightening if the economy slows significantly , with many forecasts that the Fed will reverse and start cutting rates by summer 23 as the economy slows and inflation declines,” said Louis Navellier, founder of Navellier & Associates, in a note.

The S&P 500 SPX,
+0.13%
rebounded more than 8% from its mid-June low, with investors linking improved sentiment in part to expectations that inflation has nearly peaked and the Fed will soon pause its aggressive series of increases in order to avoid a recession.

See: Wednesday’s Fed meeting will be analyzed for these 4 things

Skeptics, like Morgan Stanley’s Mike Wilson, say such expectations underestimate the Fed’s resolve to ensure it tames inflation to its highest level in more than four decades. They see the Fed maintaining an aggressive tightening stance until it sees compelling signs that inflation is on a sustainable downward path – evidence that may not come until the economy steers firmly. into recession or will not already be in recession.

Lily: Stock investors are too quick to assess the Fed’s “pause”. That could doom the rebound, says Morgan Stanley’s Wilson.

Second quarter GDP

Speaking of recession, the second quarter gross domestic product data will be in the spotlight on Thursday morning. Economists are calling for an annualized rise of 0.3%, but the Atlanta Fed’s GDPNow model projects a contraction of 1.6% after falling by the same amount in the first quarter.

Consecutive quarters of GDP contraction are often described as a “technical” recession. However, a still-robust labor market and the inventory-driven nature of the first-quarter decline make it unlikely that the National Bureau of Economic Research, the official arbiter of the US business cycle, will be ready to officially declare a recession.

Insight: A “false” recession? US economy doing well for now despite weak GDP

Ultimately, investors are increasingly worried about the economic outlook.

“With consumer sentiment improving but still at historic lows and manufacturing surveys down from their highs, deteriorating fundamentals continue to point to a high probability of an economic slowdown,” he said. writing. Jason Pride, Chief Investment Officer of Private Wealth, and Michael Reynolds, Vice President of Investment Strategy at Glenmede, in emailed comments.

“Given rising recession risks, investors should look for opportunities to de-risk the portfolio on market strength,” they said.

Stocks were in a holding pattern on Monday, swinging between small gains and losses as investors awaited this week’s news flow. The Dow Jones Industrial Average DJIA,
+0.28%
was down 0.1% in afternoon action, while the S&P 500 fell 0.3% and the Nasdaq Composite COMP,
-0.43%
fell 0.9%.

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