With the Federal Reserve meeting and a slew of big-name earnings, this is shaping up to be a big week for markets. In order to combat increasing inflation, Fed Chair Jerome Powell is likely to announce that the central bank is on track to deliver its first rate hike since 2018 in March. Investors will be hoping for reassurance from quarterly results from tech titans Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), and Tesla (NASDAQ:TSLA), but market volatility is expected to remain for the time being. There is also statistics on fourth-quarter GDP in the United States, as well as economic data from the United Kingdom and the Eurozone, which will illustrate the impact of the Omicron variation. Here's everything you need to know to get your week off to a good start.
1. The Federal Reserve is expected to announce a rate hike in March.
After statistics this week showing U.S. inflation soaring to near forty-year highs, investors are turning to the Fed for more clarity on the future course of interest rates.
At the Fed's March meeting, Jerome Powell is likely to say that the Fed will complete its bond-buying stimulus program on time and raise interest rates by a quarter-point from their current near-zero levels. Investors will be paying close attention to what the Fed says regarding its nearly $9 trillion balance sheet, as markets have already priced in four rate hikes this year.
Markets currently expect the Fed to begin reducing its balance sheet later this year as part of its monetary policy tightening efforts. According to the minutes of the Fed's December meeting, policymakers talked about cutting bond holdings for a long time.
Any signs that the balance sheet may be decreased more quickly than in the past might exacerbate the selloff in Treasuries and tech stocks.
2. Earnings avalanche
Microsoft, Apple, and Tesla are among the big-name corporations set to report profits this week, with investors attempting to distinguish between viral success tales and fundamentally sound companies.
Darling FAANG Netflix (NASDAQ: NFLX) fell more than 20% on Friday, putting pressure on the S& P 500 and Nasdaq, as the company, forecasted new subscriber growth in the first quarter would be less than half of the analysts' expectations.
According to data gathered by FactSet, Microsoft is anticipated to report quarterly revenue of more than $50 billion for the first time on Tuesday.
According to FactSet, Tesla and Apple are likely to report record profits on Wednesday and Thursday, respectively.
Other significant businesses reporting include 3M, GE, IBM (NYSE:IBM), Intel (NASDAQ:INTC), Caterpillar (NYSE:CAT), and American Express (NYSE:AXP) (NYSE:AXP). Boeing (NYSE:BA), Mastercard (NYSE:MA), Visa (NYSE:V), McDonald's (NYSE:MCD), Johnson & Johnson (NYSE:JNJ), and Colgate-Palmolive (NYSE:CL) are among the companies set to release earnings.
3. Turbulence in the market
Investors will be focusing on the Fed and profits this week, so markets are likely to stay volatile.
Wall Street's main indexes closed substantially lower on Friday, continuing the tech selloff that has pushed the Nasdaq into correction territory. Since the onset of the epidemic in March 2020, the S&P 500 and the tech-heavy Nasdaq have suffered their greatest weekly percentage drops.
During the pandemic, tech businesses reaped the benefits, and their stock prices have soared in the last two years.
However, since the beginning of 2022, a sharp rise in Treasury yields has harmed tech and growth stocks, owing to predictions that the Fed will raise interest rates quickly to confront high inflation.Higher rates may be detrimental to tech companies with high values depending on future profits.
4. Economic data from the United States
The United States will announce preliminary figures on fourth-quarter gross domestic product on Thursday, with experts predicting annualized growth of 5.2 percent. In recent weeks, expectations have been tempered as the Omicron strain of the coronavirus has wreaked havoc on economic activity.
Personal income and spending data for December are also available on the economic calendar. Given the dramatic drop in retail sales recorded last month, economists predict consumer spending to decrease sharply.
In addition, the weekly report on initial jobless claims, which hit a three-month high last week, is released every week.Some economists are concerned that the rise in unemployment claims, along with a significant decline in retail sales, may indicate that the economy is losing steam, but this is unlikely to prevent the Fed from raising interest rates in March.
5. Data from the Eurozone and the United Kingdom
The largest economy in the Eurozone On Friday, Germany, France, and Spain will report their fourth-quarter GDP figures. The results will demonstrate the influence of the Omicron version on the economic recovery, ahead of the bloc's GDP report next week.
The Eurozone is to release PMI figures on Monday which will show how economic activity fared this month.
The U.K. is also to release PMI data on Monday and while service sector activity slowed sharply in December amid the Omicron surge other data since then has indicated that that economic activity has begun to rebound. The report is likely to show a little improvement over December, and the Bank of England appears to be on pace to raise interest rates again in February.Source
