Markets face a crucial summer week, with the 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 is a wealth of news for the markets to navigate next week, the most important of which will be the Federal Reserve’s midweek meeting.

The two largest US companies, Microsoft and Apple, report on Tuesday and Thursday, respectively. Google parent Alphabet publishes results on Tuesday and Amazon reports them on Thursday. Meta Platforms, formerly Facebook, reports Wednesday. In total, more than a third of the companies in the S&P 500 are reporting.

In addition to this, there are several strong economic reports, which should add fuel to the debate about whether the economy is headed for a recession or already in crisis.

“Next week, I think, will be the most important week of the summer in terms of the economic reports coming out, in terms of GDP, the employment cost index and the Fed meeting, and the 175 companies of the S&P 500 that report earnings,” he said. Leo Grohowski, chief investment officer at BNY Mellon Wealth Management.

Second quarter gross domestic product is due on Thursday. The Fed’s preferred personal consumption expenditure inflation data, as well as the employment cost index, are released on Friday morning. Home prices and new home sales are reported on Tuesday and consumer sentiment is released on Friday.

“I think what these larger companies say about the outlook is going to be more important than the earnings they post … When you combine that with the statistical reports, which will be delayed, I think it’s going to be a volatile and important week,” he said. Grohowski.

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The run-up to the Fed meeting on Tuesday and Wednesday has already proved dramatic, with traders convinced at one point of a full point rate hike. But Fed officials walked back that view, and economists widely expect a second rate hike of three-quarters of a point after last month’s.

“Obviously, it makes a 75 basis point increase in the pie for next week,” Grohowski said. “I think the question is what happens in September. If the Fed continues to be too tight for too long, we’re going to have to increase our probability of a recession, which currently stands at 60%, over the next 12 months.” One basis point equals 0.01%.

The Fed’s rate hike is the most aggressive in decades, and the July meeting comes as investors try to determine whether the central bank’s tighter policies have already led to or will lead to a recession. This makes next week’s economic reports all the more important.

GDP report

Topping the list is second quarter GDP, which is expected to be negative by many forecasters. A contraction would be the second in a row after the 1.6% drop in the first quarter. Two consecutive negative quarters, when the declines in other data are confirmed, is seen as a sign of a recession.

The most viewed Atlanta Fed GDP now it followed a 1.6% decline during the second quarter. According to Dow Jones, a consensus forecast of economists calls for a 0.3% increase.

“Who knows? We could have an end-of-the-envelope recession with the next GDP report. There’s a 50/50 chance the GDP report will be negative,” Grohowski said. “It’s the simple definition of two bottom quarters in a row.” He added, however, that this would not mean that the National Bureau of Economic Research would declare an official recession, which takes into account a number of factors.

Diane Swonk, chief economist at KPMG, expects to see a 1.9% drop, but added that it is not yet a recession because unemployment should also rise, up to half a percent.

“It’s two negative quarters in a row, and a lot of people will say ‘recession, recession, recession,’ but it’s still not a recession,” he said. “Consumer slowed down quite a bit in the quarter. Trade remains a big issue and inventories were depleted rather than built. What’s interesting is that these inventories were depleted without much discounting. My suspicion is that inventories were ordered at even higher prices.”

Inventories last week rose. The S&P 500 ended the week up 2.6% and the Nasdaq climbed 3.3% as gains bolstered sentiment.

“We’re really shifting gears in terms of what’s going to be important next week versus this week,” said Art Hogan, chief market strategist at National Securities. “We really had an economic data that was largely ignored. Next week, it will probably match the attention we give to the household names reporting.”

Earnings better than expected?

Companies continued to surprise to the upside last week, with 75.5% of S&P 500 earnings beating expectations, according to I/B/E/S data from Refinitiv. Even more impressive is that the second quarter earnings growth rate continued to grow.

As of Friday morning, S&P 500 earnings were expected to have risen 6.2%, according to reports and actual estimates, up from 5.6% the previous week.

“We have kind of a perfect storm of inputs, pretty deep economic reports across the board, with things that have become important, like consumer confidence and new home sales,” Hogan said. “For me, the real indicator will be whether the attitude of investors remains that the earnings season is better than feared.”

While stocks gained last week, bond yields continued to fall as traders worried about the potential for a recession. The referent The 10-year Treasury yield fell to 2.76% on Friday, after weaker PMIs in Europe and the US sent a chilling warning to the economy. Yields move inversely to price.

“I think the market is pivoting,” Grohowski said. “I think our concerns are at least rapidly shifting from persistent inflation to recessionary concerns.”

The potential for volatility is high, with markets focused on the Fed, earnings and the recession. Fed Chairman Jerome Powell could also create some waves, if he is more hawkish than expected.

“There are a lot of signs about slowing economic growth that will bring down inflation. Hopefully, the Fed won’t stay too tight for too long,” Grohowski said. “The possibility of a Fed policy mistake continues to rise because we continue to have signs of an economy that is cooling rapidly, not just cooling.”

Weekly calendar in advance

Monday

Earnings: Newmont Goldcorp, Squarespace, Whirlpool, NXP Semiconductor, TrueBlue, F5

Tuesday

Earnings: Microsoft, Alphabet, Coca-Cola, McDonald’s, General Motors, 3M, UPS, PulteGroup, Raytheon Technologies, Texas Instruments, Archer-Daniels-Midland, Chubb, Chipotle Mexican Grill, Mondelez International, Canadian National Railway, Pentair, LVMH, Paccar , Kimberly-Clark, Albertsons, General Electric, Ameriprise, Teradyne, Ashland, Boston Properties, FirstEnergy, Visa

FOMC begins 2-day meeting

9:00 a.m. S&P/Case-Shiller home prices

9:00 a.m. FHFA Housing Prices

10:00am Sale of new homes

10:00am Consumer confidence

Wednesday

Earnings: Boeing, Meta Platforms, Bristol-Myers Squibb, Ford, Etsy, Qualcomm, T-Mobile, Kraft Heinz, Norfolk Southern, Netgear, Cheesecake Factory, American Water Works, Ryder System, Genuine Parts, Waste Management, Hilton Worldwide, Boston Scientific, Owens Corning, Sherwin-Williams, Fortune Brands, Lam Research, Flex, Hess, Community Health Systems, Molina Healthcare

08:30 a.m. Durable goods

10:00 a.m. Pending sale of homes

14:00 FOMC statement

2.30 p.m. Press conference by the president of the Fed, Jerome Powell

Thursday

Earnings: Apple, Amazon, Comcast, Intel, Merck, Pfizer, Honeywell, Mastercard, Northrop Grumman, Southwest Air, Harley-Davidson, Anheuser-Busch InBev, Diageo, Shell, Stanley Black and Decker, Carlyle Group, Southern Co, Lazard, Roku, International Paper, Sirius XM, Hershey, PG&E, ArcelorMittal, Keurig Dr. Pepper, Hertz Global, T.Rowe Price, Valero, Embraer, First Solar, Beazer Homes, Hartford Financial, Celanese, VF Corp, Eastman Chemical, Frontier Group

8:30 a.m. Initial claims

8:30 a.m. Real GDP [Q2 advanced]

Friday

Earnings: AstraZeneca, Weyerhaeuser, Sony, BNP Paribas, Eni, Aon

8:30 a.m. Employment cost index

8:30 a.m. Personal income/expenses

8:30 a.m. PCE deflator

9:45am Chicago PMI

10:00am Consumer sentiment



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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!