Markets face what could be the hottest week of the summer with Fed, earnings and economic data

Markets face what could be the hottest week of the summer 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 is a great deal of news to be had in the markets next week, the biggest of which will be the Fed’s midweek meeting.

The two largest US companies – Microsoft and Apple – report on Tuesday and Thursday, respectively. Google’s Alphabet releases results on Tuesday, Amazon reports Thursday. Meta Platforms, formerly known as Facebook, reported on Wednesday. In all, more than a third of the Standard & Poor’s 500 companies report.

Moreover, there are several huge economic reports, which should intensify the debate about whether the economy is heading into a recession or is already going through a recession.

“Next week, I think, will be the most important week of the summer between the release of economic reports, in terms of GDP, the cost of employment index and the Federal Reserve meeting — and 175 S&P 500 companies announcing their earnings,” said Leo Grohosky, chief executive officer. Investing in BNY Mellon Wealth Management.

Thursday is expected gross domestic product for the second quarter. The Fed’s preferred personal consumption expenditures inflation data will be released on Friday morning, as will the employment cost index. Home prices and new home sales were released on Tuesday and consumer confidence was released on Friday.

“I think what those big companies say about the forecast is going to be more important than the earnings that they publish. … When you combine that with the statistical reports, that’s going to be lagging, I think it’s going to be a volatile and significant week,” Grohwski said.

The run-up to the Federal Reserve’s meeting on Tuesday and Wednesday has already proven exciting, with traders at one point convinced that a full point rate hike was soon. But Fed officials dismissed that view, and economists widely expect it to be a second rally of three-quarters of a point to follow last month’s rally.

“Obviously a 75 basis point increase will bake the pie for the next week,” Grohosky said. “I think the question is what will happen in September. If the Fed continues to stay very tight for a very long time, we will need to increase the probability of a recession, which is currently at 60% over the next 12 months.” The base point is 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 hawkish policies have actually led or will lead to a recession. This makes next week’s economic reports even more important.

GDP report

Topping the list is Q2 GDP, which is expected to be negative by many forecasters. The contraction would be the second in a row on top of the 1.6% decline in the first quarter. Two consecutive negative quarters, when confirming the decline in other data, are seen as a sign of recession.

Atlanta’s widely watched federal GDP was tracking a 1.6% decline for the second quarter. According to Dow Jones, economic analysts’ forecasts expect a rise of 0.3%.

“Who knows? We could have an unexpected recession with the next GDP report. There is a 50/50 chance that the GDP report will be negative,” Grohosky said. “It’s a simple definition of two consecutive bottom quarters.” But, he added, this does not mean that an official recession will be announced by the National Bureau of Economic Research, which takes into account a number of factors.

Diane Swonk, chief economist at KPMG, expects to see a decline of 1.9%, but added that it’s not a recession yet because unemployment will need to rise as well, by as much as half a percent.

“That’s two negative quarters in a row, and a lot of people would say ‘stagnation, slump, stagnation,’ but that’s not a slump yet,” she said. “Consumer slowed down a bit during the quarter. Trade is still a big problem and has depleted inventories rather than building it up. What’s interesting is that those inventories have been depleted without much of a discount. I doubt inventories have been ordered at higher prices.”

Stocks last week were higher. The S&P 500 ended the week up 2.6%, and the Nasdaq gained 3.3% as earnings boosted sentiment.

“We’re really changing 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 already have economic data that has been largely ignored. Next week, it will likely equal the attention we pay to household names being reported.”

Better than expected earnings?

Companies continued to surprise last week, with 75.5% of S&P 500 earnings better than expected, according to I/B/E/S data from Refinitiv. What’s even more impressive is that the earnings growth rate for the second quarter continued to grow.

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

“We have sort of a perfect storm of input, very deep economic reporting across the board, with things that are becoming important, like consumer confidence and new home sales,” Hogan said. Earnings season is better than feared.

While stocks rose last week, bond yields continued to fall, as traders were concerned about the possibility of a recession. The benchmark 10-year Treasury yield fell to 2.76% on Friday, after weak PMIs in Europe and the United States sent a chilling warning to the economy. Returns move opposite the price.

“I think the market is pivoting,” Grohosky said. “I think at least our concerns are quickly shifting from persistent inflation to concerns about recession.”

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

“There is a lot of evidence of slowing economic growth that will lower inflation. Hopefully, the Fed won’t stay too tight for too long,” Grohosky said. “The chance of a policy error by the Fed continues to increase as we continue to get signs of a rapid — and not only — slowdown in the economy.”

Next week’s calendar

Monday

gains: 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

The Federal Open Market Committee begins a two-day meeting

9:00 a.m. Home Prices S&P / Case-Shiller

9:00 am Housing prices

10:00 am New Home Sales

10:00 am Consumer Confidence

Wednesday

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

8:30 am durable goods

10:00 am pending home sales

2:00 p.m. FOMC Statement

2:30 p.m. Federal Reserve Chairman Jerome Powell’s briefing

Thursday

gains: 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 am Initial claims

8:30 am real GDP [Q2 advanced]

Friday

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

8:30 a.m. labor cost index

8:30 a.m. personal income/expenditure

8:30 AM PCE contraction device

9:45 AM PMI Chicago

10:00 am Consumer review

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