The Stock Market’s Reaction to The Fed Outlook Resulted in A Positive Week for Stocks
Investors evaluated prospects for less-aggressive central bank tightening and weighed China’s latest move to nurture its economy before the end of Friday. Markets surge.
For much of Friday’s condensed trading day, the S&P 500 was undecided. Nevertheless, the index reached a seven-week high after posting a weekly gain of 1.5%. Despite a dip on Friday, the Nasdaq 100 gained for the week. The majority of Treasuries erased early losses.
This week’s Federal Reserve meeting minutes revealed that most members favor reducing the pace of interest-rate increases. Hence the sentiment grew stronger. Since the Fed’s last meeting, investors have been parsing a slew of economic indicators, which has strengthened the case for slower rate increases.
Fed Chair Jerome Powell and New York Fed President John Williams are among the central bank officials who will speak next week. Analysts at TD Securities predicted that both officials would stress that the Fed will keep raising rates for longer due to a tight labor market and rising services inflation.
Traders View Earnings in The Shadow of Pessimism
Despite prominent market gains, some investors believe uninspiring earnings will send equities lower again, despite good recent weeks. Corporate profits squeezed further. According to investors, the market’s recent optimism might quickly fade. A company’s share price divided by its earnings is frequently used to measure whether it appears cheap or expensive by market players. That might cause the market to seem overvalued if the earnings side of the equation slows down.
According to FactSet, index components are on track to post 2% year-over-year profit growth in the third quarter. This is based on results from 97% of companies in the S&P 500. Since the third quarter of 2020, when the Covid-19 pandemic peaked, that would represent the lowest earnings growth.
Salesforce Inc. and Dollar General Corp. are among the companies that should report this week. Kroger Co.’s quarterly results are to be reported soon. Investors will assess the health of the economy. Meanwhile, they will parse the latest consumer-confidence reading, gross domestic product estimate, and the Labor Department’s monthly employment report.
S&P 500 firms’ current-quarter profits forecasts have also been cut sharply by Wall Street analysts. They now anticipate the first annualized quarterly profits setback since 2020. According to FactSet data, analysts projected growth of around 9% in the fourth quarter at the end of June. They predict a drop of around 2% as of Friday.
With consensus projections calling for more than 5% yearly earnings growth for the calendar year 2023, analysts continue to paint a bright picture of the future. Yet, as an impending recession looms and the Fed’s interest rate increases make their way to company bottom lines, many investors fear further downward revisions.