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Markets are expected to remain on edge as the Fed meets in the week ahead


Traders in the NYSE Floor, Jan. 13, 2022.

Source: NYSE

Market turbulence is likely to continue in the week ahead as the Federal Reserve meets and the biggest of big tech —Apple and Microsoft — report earnings.

On Friday, stocks were close to their worst week for months. There was a lot of losses in tech and consumer discretionary companies. FANG darling NetflixIt was taken after Thursday’s earnings and traders are now watching closely to see if other tech companies will be swept away.

For markets, Tuesday’s Federal Reserve meeting and Wednesday’s Federal Reserve meeting are the most important. Markets will wait for any clues as to when or how much this central bank will increase interest rates. Economist expect the Fed to steer markets to a quarter-percentage-point March rate hike.

A slew of earnings reports, which include nearly all the Dow 30 blue chip companies, are also expected. 3M, IBMIntel, CaterpillarAnd American Express.These are the two largest stocks by market capitalization. MicrosoftAnd AppleReport on Tuesday or Thursday.

A focus on the economy is also possible with Thursday’s first glimpse at Fourth-quarter GDP and Friday’s personal Consumption expenditures data. These include the Fed’s preferred measure of inflation.

After a week of wild swing action that saw major indexes plunge steeply, stocks could face volatile trading.

On Friday, the Nasdaq had lost 5.7% in the past week. This was its largest weekly drop since October 2020. Consumer discretionary was the worst performing sector, with a drop of 7%, followed by financials (down 5.6%) and technology (5.5%).

So far, earnings season has seen mixed results. Investors have reacted negatively to some of the most prominent stock stories.

Stocks of Netflix are exploding after it discussed disappointing subscriber dataThursday saw JP Morgan Chase fall sharply from a week prior when it reported slower trading activity and increased expenses.

“We don’t think the earnings season will be a major catalyst that would send the indexes in any significant direction.” “This is a stock by stock story,” stated Julian Emanuel (chief equity, derivatives, and quantitative strategist at Evercore ISI).

Companies that fail to deliver on their promises or good results will likely be awarded. [revenues or earnings]They will receive disproportionate punishment. He said that it doesn’t really matter how you win or lose, but negative comments about margins or costs will result in you being punished.

Fed Chairman Alan Greenspan is concerned about inflation because it has been reflected in higher prices and rising earnings. When Chairman of the Fed announces his concern about inflation, investors will pay close attention. Jerome PowellAfter Wednesday’s release of the statement by the Federal Open Market Committee, briefings were given to the media.

While the Fed won’t likely change its policy or raise interest rates at this meeting it can set the scene for when it closes down its bond buying program. This is expected to be in March. Many economists expect the Fed could start raising its fed funds target rate from near-zero with a quarter-percentage-point hike in March.

Emanuel stated that the baseline was four more hikes, and then the beginning of quantitative tightening sometime in the middle or later part of the year. I don’t believe the Fed will do anything to change that market stance.

The Fed also stated that it might move to shrink its balance sheetThis year would see another form of tightening in policy, when the central bank stops replacing maturing securities with market-purchased bonds. This would, in essence, reduce the size of central bank reserves. nearly $9 trillion balance sheet.

After its December forecast, Powell has sound much more hawkish. Powell will not change his tone, even in light of the release of its December forecast. stocks selling offEmanuel said it.

Powell might come across as being dovish and that would make it a good sign for the market. But, we could argue the opposite.” he stated. If the market does not believe Powell is going to the four-hike plan it is very possible that the 10-year yields, which broke out of the 3-year range and went over 1.80% could move very quickly to 2%.

He said that growth is being backfooted, not value. It would create a very unstable market.

Fed observers already believe that the Fed is behind the curve.

Ethan Harris, Bank of America’s global economist research chief, wrote: “The Fed has not responded as slowly to an emerging inflation risk” Both stocks and bonds will suffer if they fall short and the inflation rate settles nearer to 3% than 2.2%.

Stalling bond yields

While bond yields rose stair-steps in the first week of this week, they also fell at the end. This benchmark is widely followed 10-year Treasury yieldThe week’s middle saw a 1.9% increase, before falling to 1.75% on Friday.

BMO’s head of U.S rates strategy Ian Lyngen stated that the bond market has priced in an increase in the Fed funds rate to 1.75 percent. For the 10-year rate to rise to 2%, Lyngen said that the Fed must indicate its willingness to push the funds target higher.

Lyngen stated that “we expect it to consolidate in the same range until Wednesday.” “If the Fed is not more hawkish then it will be a classic case of ‘buying the rumor, selling the fact’, and the 10-year yield will drift lower. Yields are inversely related to price.

The rate rise has had the most negative impact on tech and growth stocks. These stocks are valued on their potential future profits. If there is cheap money, then valuations could be higher.

Many strategists believe that value and cyclical stocks will perform better as inflation flares, and the Fed tightens. Technology sector’s decline has been close to 10% since the start of this year. Energy has been the outperformer,This year’s only sector that has seen a rise in employment is and, at 13.5%, it was the largest.

Emanuel explained that “the Fed’s entire intent is to tighten fiscal conditions so ina way, Fed what you have seen in the first 3 weeks of the year may be fine with.” I don’t think Powell would try to change the current market situation. “I think that you are quite content with how this year began.”

Emanuel expects the S&P 500 to end the year at 5,100. As for the current sell-off, he said the S&P 500 is likely to reach its 200-day moving averageIt’s estimated at 4,425, although it is not certain that this will be the lowest price.

Week ahead calendar


Earnings: IBM,Zions Bancorp HalliburtonRoyal Phillips Steel Dynamics

9.45 AM Manufacturing PMI

PMI 945 A.M.


Federal Reserve Open Market Committee begins meeting

Earnings: Microsoft, Johnson and Johnson, American Express, Verizon, 3M, General ElectricTexas Instruments Raytheon Technologies,Lockheed Martin Archer Daniels Midland,Canadian National Railway. Hawaiian Holdings. Capital One, Paccar, F5 Networks, Boston Properties

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

9:00 AM FHFA home price

10:00 AM Consumer confidence


Earnings: Intel, Boeing, AT&T, Tesla, WhirlpoolGeneral Dynamics Anthem, Abbott Labs, , Nasdaq, Levi Strauss, Knight-Swift Transportation, Samsung Electronics, ServiceNow, Xilinx, Seagate Technology, Lam Research, Teradyne, Raymond James, Flex, SLM, LendingClub

8:15 a.m. Economic indicators

10:00 a.m. New home sales

2:00 p.m. FOMC decision

2:30 p.m. Briefing with Fed Chairman Ben Bernanke


Earnings: Apple, McDonald’s, Visa, ComcastInternational Paper, Blackstone, Mastercard, Mondelez, Robinhood, Altria, JetBlue, Deutsche Bank, STMicroelectronics, Diageo,Marsh and McLennan. Sherwin-Williams. T. Rowe Price. Ball Corp. Diageo, Nucor, Alaska Air, Tractor Supply, SAP, Dow,Southwest Air Northrop Grumman, HCA Healthcare, McCormick, Textron, Valero Energy, Ethan Allen, KLA Corp, Beazer HomesWestern Digital Eastman ChemicalCanadian Pacific Railway Celanese, Olin, Danaher, Murphy Oil

8:30 a.m. 8:30 a.m.

8:30 a.m. Durable goods

8:45 a.m. Q4 real GDP advance

10:00 a.m. Pending home sales


Earnings: Chevron, Caterpillar, Colgate-Palmolive, Weyerhaeuser,Synchrony Financial and Charter Communications. Philips 66. Church & Dwight, Booz Allen Hamilton, LyondellBasell IndustriesVF Corp

8:30 a.m. 8.30 a.m.

8:45 a.m. Q4 Index for Employment Costs

10:00 a.m. Consumer sentiment