US stock markets have come off their 2022 lows. However, we saw a sell-off on Friday amid renewed recession fears. The current week looks quite data-heavy.
Apart from a flurry of earnings, we have the US second quarter GDP release and the Federal Reserve’s July meeting. The outcomes of these events would set the market direction not only for the current week but also for the second half of the year.
Last week, we had three main tech earnings. While Netflix impressed with the performance and lost fewer than expected subscribers in the second quarter, Snap and Twitter missed their respective earnings estimates. Snap stock crashed after the earnings release and dragged down the entire social media space.
This week, we’ll get earnings from Microsoft, Apple, Amazon, Meta Platforms, and Alphabet in the tech space. Among industrials, both Ford and General Motors would release their earnings along with Boeing. Chipmaker Intel would also release its earnings this week. Micron had provided a dismal outlook for the global PC and smartphone industry during its earnings call. Markets would next look at Intel’s earnings to get more insights into the semiconductor industry.
Tech earnings would especially get outsized attention, as they usually do. The price action of trillion dollar giants like Alphabet, Microsoft, and Amazon usually impacts the broader markets also. The earnings would come at a time when several Big Tech companies have announced cutbacks in their hiring plans. Alphabet has also put a two-week hiring freeze amid slowing growth. During the upcoming earnings releases, markets would watch out for commentary on tech companies’ hiring as well as capex plans.
Markets Await the Outcome of Federal Reserve’s July meeting
The US Federal Reserve raised rates by 75 basis points at its June meeting. The hike, which was the steepest since 1994, spooked markets and we saw a crash. US June CPI inflation came in at a new pandemic high of 9.1%. Pressure is building on the Fed to tame the multi-decade high inflation. Most analysts expect another 75 basis point rate hike from the Fed this week. Some, including Citi, expect the fed to hike rates by a full percentage point, something which we haven’t seen in decades.
The Fed has made it amply clear that lowering inflation is its top priority. Rising inflation has hurt the monthly budgets of many households and is prompting them to curtail spending on discretionary goods.
Rising inflation and geopolitical uncertainty took a toll on US GDP in the first quarter and it contracted 1.6% during the quarter. Several economic indicators including Atlanta Fed’s GDP tracker show that the economy contracted in the second quarter also. The Fed has a tough task at hand in managing slowing growth and rising inflation.
US GDP Release This Week: Watch Out for Contraction
This week, markets would also watch the second quarter US GDP release. The data point would help analyze the impact of rising inflation on the world’s largest economy. Gas prices in the US rose to their all-time highs but have since come down. They are still way above what they were at the same time last year.
Rising oil and gas prices have bumped up the earnings of energy companies and legendary investors like Warren Buffett and Stanley Druckenmiller are among those who have bought oil stocks in 2022.
While rising energy prices are positive for oil and gas companies, they have also added to inflation as energy prices have a domino impact on inflation. Rising inflation and interest rates hike are the two biggest headwinds for markets in 2022.
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This article was written for Business 2 Community by Mohit Oberoi.
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