The Dow Jones Industrial Average has extended its winning streak for ten consecutive days, buoyed by benign inflation reports and excitement surrounding the advancements in artificial intelligence. However, the coming week poses significant challenges for market participants, as several catalysts may disrupt the prevailing market stability.
Investors are closely speculating on the Federal Reserve's decision regarding its rate hike stance during the policy meeting. Any unexpected actions or hawkish commentary from Federal Reserve Chair Jerome Powell could potentially dampen investor enthusiasm.
The market anticipates a quarter percentage point rate hike after the Federal Reserve meeting. However, the central bank's subsequent actions remain uncertain. Traders will be attentively monitoring commentary from Federal Reserve Chair Jerome Powell for insights into the future course of action. The strength of the labour market and consumer indicators are expected to play a vital role in the central bank's approach to combating inflation.
The market's response to the Federal Reserve's decisions holds critical importance in maintaining stability. While many investors anticipate the central bank to conclude its rate hike, any surprising moves or hawkish statements could undermine the recent investor enthusiasm. Additionally, traders will shift their focus to the upcoming Jackson Hole economic symposium, where the central bank may reset expectations.
Despite the recent stock market rally, concerns regarding a potential recession still linger. Traders continue to closely monitor the lagged effects of interest rate hikes and other indicators of potential economic slowdown. The gradual decline in inflation provides a sense of stability, but a balanced approach is essential to navigate the remainder of the year successfully.
The upcoming week marks the peak of the earnings season, with mixed results reported thus far. Out of the 89 companies in the S&P 500 that have released earnings, 75% have reported positive surprises. However, this performance falls below the three-year average, indicating potential challenges for corporate America.
Traders will be paying close attention to sales growth figures during this earnings season. The focus will be on assessing the margin compression that has been anticipated, which has influenced lower earnings expectations and raised concerns about an "earnings apocalypse."
Notably, prominent technology companies like Alphabet and Microsoft are scheduled to report their earnings next week. These reports are expected to attract significant attention and potentially overshadow other earnings releases. The performance and outlook of these industry leaders will likely exert a notable influence on market sentiment and investor confidence.
Fullerton Markets Research Team
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