Despite Friday’s move lower, with the NASDAQ leading to the downside on concerns over earnings by the technology sector, all three major stock market averages still posted solid weekly gains. The Dow Jones Industrial Average rose 2% to 31,899 – the Standard & Poor’s 500 Index gained 2.6% to 3,962 – and the NASDAQ Composite jumped 3.3% to 11,834. These gains in the stock market came despite worries over a slowing U.S. economy and another large interest rate hike likely coming from the Federal Reserve this week.
The Fed is expected to raise rates ¾ percent after its policy meeting concludes Wednesday afternoon, as it continues to fight inflation. According to the CME FedWatch Tool, there’s a 75.1% probability the Fed will hike rates ¾ percent, and a 24.9% probability for a full 1% rate hike. Previously the odds were higher for a 1% rate hike, but several Fed officials have talked down that possibility. In addition to full-on “Fed(hawk)-watching” during the week ahead, we’ll also get an important batch of economic reports, none more significant than the reading on Gross Domestic Product for the second quarter of 2022.
Consensus market expectations are for growth of .5%, but several forecasts are predicting a negative quarter. Widely followed by financial markets, the Atlanta Fed GDPNow model, estimates second quarter GDP growth at -1.6%, which would mark the second consecutive quarter of contraction for the US economy, which is the textbook definiton of a recession. However, a recession is generally considered official when declared by the National Bureau of Economic Research, which takes multiple factors into account.
Another major focal point for investors in the week ahead will be earnings reports. It’s the busiest week for corporate earnings, with approximately 1/3rd of Standard & Poor’s 500 companies scheduled to report results. Big tech companies Microsoft, Meta Platforms, Apple, Alphabet, and Amazon highlight the earnings parade this week. Away from tech, we’ll be getting reports from companies including Boeing, McDonald’s, General Electric, Visa, Coca-Cola, Pfizer, Bristol-Myers Squibb, Hershey, Chipotle Mexican Grill, ExxonMobil, General Motors, Merck, and Intel (just to give you a flavor of the diversity and quantity of earnings reports out this week)!
With several major factors at play in the market now, we’d like to remind you of the importance of sticking to the long-term plan that is right for YOUR specific goals/objectives/risk tolerance. Don’t let short-term volatility change your long-term plan – and remember that investing is a marathon, not a sprint!
All the best – Southport Station Financial Management, LLC