- Amazon, Microsoft, Apple and Meta will report earnings this week.
- Investors are eagerly awaiting the Fed policy meeting.
- Market participants are eagerly awaiting the US nonfarm payrolls report.
Equities rose slightly on Monday and Tuesday as investors mostly stayed on the sidelines ahead of major events. Markets await key US data, major US tech earnings reports, and the Federal Reserve policy meeting.
US earnings index (Source: Citigroup, Bloomberg)
Monday was a choppy session for US stocks because investors held off on big positions. Notably, major stock companies, including Amazon, Microsoft, Apple, and Meta, will report earnings this week, which could cause a lot of volatility. Last week, Tesla and Alphabet gave poor earnings, which caused a strong selloff on Wednesday. Moreover, a Citi index revealed that investors are increasingly betting on poorer earnings.
Meanwhile, investors are also eagerly awaiting the Fed policy meeting. The recent gains in equities have come from rate-cut optimism. Data from the US has shown that inflation is on a consistent downtrend. As a result, investors are more confident the Fed will cut in September. Moreover, policymakers might assume a more dovish tone.
Although the Fed will likely keep rates unchanged, the focus will be on the tone of the meeting. Investors are waiting to see whether the Fed changes its outlook for only one rate cut in December. If it projects two cuts, it will indicate confidence that inflation will sustainably reach 2%. This would lead to a rally in equities. However, policymakers may remain cautious because the US economy remains robust. Prices will plunge if the Fed maintains its outlook for one rate cut this year.
Equities ended Friday higher after more US data pointed to moderating inflation. The US core PCE price index edged slightly higher on a monthly basis, as expected. Meanwhile, the annual figure eased from 2.6% in May to 2.5% in June. Therefore, the likelihood of a September Fed rate cut remained steady at around 88%.
Furthermore, market participants are looking forward to the US nonfarm payrolls report, which is due on Friday. The labor market has remained resilient, powering the rest of the economy. However, recent figures have shown some easing. If this trend continues, the Fed will be more likely to cut rates in September. A cooling labor market will decrease the risk of a spike in inflation. On the other hand, if employment remains robust, policymakers will remain cautious.
