The recent string of gains in the market may face a potential setback as traders prepare for a significant Federal Reserve meeting and the start of earnings season. The Dow Jones Industrial Average managed to achieve a 10-day winning streak, thanks to soft inflation reports and the growing excitement surrounding artificial intelligence. However, the market is on edge as several catalysts loom ahead, which could disrupt the current market stability. Many investors are speculating that the Fed will adopt a “one and done” strategy after their upcoming policy meeting. Nevertheless, any unexpected action or hawkish comments from Fed Chair Jerome Powell could dampen the recent enthusiasm among investors. Art Hogan, the chief market strategist at B. Riley Wealth Management, believes that overanalyzing the Fed’s statement and press conference could lead to market unrest.
Wall Street is anticipating a quarter percentage point rate hike at the conclusion of the Fed’s meeting next week. However, the central bank’s plans for September remain unclear. According to the CME FedWatch Tool, 83% of traders expect the Fed to halt rate hikes at that point. The market will closely examine Powell’s comments during the meeting to gain a better understanding of the central bank’s future actions as it aims to navigate a soft landing. It is widely anticipated that Powell will not deviate significantly from the current narrative, which emphasizes the strength of the labor market and the consumer in the fight against inflation. Shannon Saccocia, Chief Investment Officer at NB Private Wealth, predicts that the Fed’s statement will not greatly impact the market and suggests that traders should focus their attention on the Fed’s Jackson Hole economic symposium next month for potential market resets. Despite the recent market rally, concerns of an impending recession still persist as traders monitor the delayed effects of interest rate hikes and other signs of economic slowdown.
Earnings Season and the Tech Sector
The upcoming week holds the most significant earnings season, with mixed results thus far. Of the 89 companies in the S&P 500 that have reported, 75% have exceeded expectations. However, the market will gain a clearer insight into the state of corporate America next week, particularly regarding sales growth. Investors will closely monitor the performance of companies and their ability to withstand margin compression. This aspect has been a cause for concern at the beginning of the year, contributing to lower earnings expectations and fears of an earnings catastrophe. While tech giants like Alphabet and Microsoft are expected to steal the spotlight with their earnings reports, Saccocia advises investors to also pay attention to consumer giants and luxury consumer names to understand how consumers are responding to price increases.
The week ahead has a busy calendar of economic events. On Monday, the Chicago Fed National Activity Index for June and the S&P Global manufacturing and services PMIs for July will be released. Tuesday will bring the S&P/Case-Shiller home price index for May and the consumer confidence report for July. Wednesday includes the release of the new home sales report for June and the highly anticipated FOMC policy decision. Thursday will see the release of initial jobless claims, durable goods orders for June, and the first preliminary reading of second-quarter GDP. Finally, on Friday, the Personal Consumption Expenditure index for June and the consumer sentiment report for July (final) will be published.
The market is facing uncertainty as traders brace for the upcoming Federal Reserve meeting and the start of earnings season. The actions and comments of the Fed, along with the performance of companies during earnings season, will greatly influence market outcomes. The market remains cautious amid concerns of a potential recession, and investors are advised to approach the rest of the year with a balanced approach. The upcoming week will provide valuable insights into the state of the economy and the market’s response to various factors.