Markets face an important summer week, with Fed, earnings and economic data
A trader works on the floor of the New York Stock Exchange (NYSE), June 27, 2022.
Brendan McDermid | Reuters
There’s plenty of news to watch out for for the markets to navigate in the coming week, the biggest of which will be the Federal Reserve’s midweek meeting.
The two largest US companies – Microsoft and Apple – Tuesday and Thursday reports, respectively. Google’s Parents Alphabet results on Tuesday and Amazon reports on Thursday. Meta . Platform, formerly Facebook, reported Wednesday. In total, more than a third of the S&P 500 companies are reporting.
On top of some huge economic reports, these will add fuel to the debate over whether the economy is headed for, or already in, a recession.
“I think next week will be the most important week of the summer between economic releases, related to GDP, the cost of employment index and the Fed meeting – and 175 S&P 500 companies reporting. income statement,” said. Leo Grohowski, chief investment officer at BNY Mellon Wealth Management.
Second-quarter gross domestic product is expected on Thursday. The Fed’s preferred personal consumption spending inflation data is due on Friday morning, as is the employment cost index. Home prices and new home sales are reported on Tuesday and consumer sentiment released on Friday.
“I think what those larger companies have to say about prospects is more important than the earnings they post. … When you combine that with the statistical reports, it looks dated, I think. It will be a tumultuous and important week,” said Grohowski.
The Fed meeting on Tuesday and Wednesday proved to be very dramatic, with traders at one point convinced A full-point interest rate hike is coming. But Fed officials have dismissed that view, and economists widely expect a second three-quarter point gain a month ago.
“Clearly a 75 basis point increase is in the cake next week,” said Grohowski. “I think the question is what will happen in September. If the Fed stays tight for too long, we’ll need to increase the probability of a recession, which is currently at 60% over the next 12 months.” The basis point is equal to 0.01%.
The Fed’s rate hike was the most positive in decades, and the July meeting came as investors were trying to determine whether tighter central bank policies have stimulated or will. recession activity. That makes last week’s economic reports all the more important.
Topping the list is Q2 GDP, which many forecasters forecast is negative. The drop would be the second in a row following a 1.6% drop in the first quarter. Two consecutive negative quarters, when confirming declines in other data, are seen as signs of a recession.
Followed by many people Fed GDP in Atlanta right now is tracking a 1.6% decline in the second quarter. According to Dow Jones, the consensus forecast of economists is for a gain of 0.3%.
“Who knows? We could have a terrible recession with the next GDP report,” Grohowski said. “There’s a 50/50 chance that the GDP report is negative.” “That’s the simple definition of two consecutive quarters of decline.” However, that does not mean, however, that an official recession will be declared by the Office of National Economic Research, he added. consider several factors.
Diane Swonk, chief economist at KPMG, expected a 1.9% drop, but added that this is not yet a recession as the unemployment rate also needs to go up, by about half a percentage point. .
“It’s been two negative quarters in a row, and a lot of people would say ‘recession, recession, recession,’ but it’s not a recession yet,” she said. “Consumers slowed down a bit during the quarter. Trade was still a big deal and inventories were consumed instead of built. What’s interesting is that those inventories were consumed without much discount. I suspect the inventory is ordered at a higher price.”
Stocks were higher this past week. The S&P 500 ended the week with a gain of 2.6% and Nasdaq up 3.3% as earnings bolster sentiment.
“We’re really shifting our focus on what’s going to be important next week compared to this week,” said Art Hogan, chief market strategist at National Securities. “We actually had a largely ignored economic data. Next week it will likely equal our attention to reported household names.”
Earnings better than expected?
According to I/B/E/S data from Refinitiv, companies continued to surprise gains in momentum over the past week, with 75.5% better-than-expected S&P 500 earnings. Even more impressive was the continued growth in second-quarter earnings growth.
As of Friday morning, S&P 500 earnings are expected to grow 6.2%, based on actual reports and estimates, up from 5.6% a week earlier.
“We have a perfect storm of inputs, pretty insightful economic reports, with things that have become important, like consumer confidence and new home sales,” said Hogan. Investors continue to attribute a better earnings season to concern. “
While stocks rallied over the past week, bond yields continued to slide, as traders worried about the possibility of a recession. Exact score 10-year Treasury yield fell to 2.76% on Friday, after weaker PMIs in Europe and the US sent a chilling warning about the economy. Yields move inversely to price.
“I think the market is turning around,” Grohowski said. “I think our concerns are at least rapidly shifting from persistent inflation to recession concerns.”
The potential for volatility is high, with markets focused on the Fed, earnings and recession worries. Fed Chairman Jerome Powell could also make some waves, if he turns out to be more belligerent than expected.
“There are plenty of signs that slowing economic growth will bring down inflation,” Grohowski said. Hopefully the Fed doesn’t hold on too long.” “The chances of a Fed policy error continue to grow because we continue to get signs of a rapidly cooling – not just cooling – economy.”
Income: Newmont Goldcorp, Squarespace, WhirlpoolNXP Semiconductor, TrueBlue, F5
Income: Microsoft, AlphabetCoca-Cola, McDonald’s, Synthetic engine, 3M, UPS, PulteGroup, Raytheon Technologies, Texas Instruments, Archer-Daniels-MidlandChubb, Chipotle Mexican Barbecue, Mondelez International, Canadian National Railways, Pentair, LVMH, Paccar, Kimberly Clark, Albertsons, General Electric, How surprising, Teradyne, Ashland, Boston properties, FirstEnergy, Passport
FOMC begins 2-day meeting
9:00 am S&P / Case-Shiller house prices
9:00 am FHFA house prices
10:00am New home for sale
10:00 am Consumer confidence
Income: Boeing, Meta . Platform, Bristol-Myers Squibb, Ford, Etsy, Qualcomm, T Mobile, Kraft Heinz, Norfolk Southernnetgear, Cheesecake Factory, American water works, Ryder System, Genuine Parts, Waste management, Hilton Worldwide, Boston Scientific, Owens Corning, Sherwin-Williams, Fortune brand, Lam Research, Bend, HessCommunity Health System, Health Care Molina
8:30 a.m. Durable goods
10:00 am Home sale pending
2:00pm FOMC statement
2:30 p.m. Fed Chairman Jerome Powell gives a briefing
Income: Apple, Amazon, Comcast, Intel, Merck, Pfizer, Honeywell, Master CardNorthrop Grumman, Southwest Air, Harley-Davidson, Anheuser-Busch InBev, Diageo, Cover, Stanley Black and Decker, Carlyle Group, Southern Co, Lazard, Roku, international paper, Sirius XM, Hershey, PG&E, ArcelorMittal, Keurig Dr. PepperHertz Global, T. Rowe Price, Valero, Embraer, first sun, Beazer Homes, Hartford Financial, Celan, VF Corp, Eastman Chemical, Border group
8:30 a.m. Initial Requests
8:30 a.m. Real GDP [Q2 advanced]
Income: AstraZeneca, Weyerhaeuser, Sony, BNP Paribas, Eni, Aon
8:30 a.m. Employment cost index
8:30 a.m. Personal income/expenditure
8:30am PCE deflator
9:45 a.m. Chicago PMI
10:00 am Consumer sentiment