Wall Street Braces for Crucial Week: Tech Earnings, Fed Meeting, and Key Employment Data Ahead

Investors are preparing for a critical week that could shape the future of U.S. stocks. Big tech companies are about to release their earnings, the Federal Reserve will hold a policy meeting, and important employment data will be revealed. This comes after a period of market volatility, with the S&P 500 and Nasdaq Composite Index experiencing their biggest one-day losses since 2022 due to disappointing earnings from Tesla and Alphabet, Google’s parent company.

Tech Earnings in the Spotlight

A recent rally in tech stocks hit a snag in July, and next week’s earnings reports from major players like Microsoft, Apple, Amazon, and Meta Platforms (Facebook’s parent company) could further impact investor confidence.

The strong performance of tech stocks this year has driven the market up but has also raised concerns about their high valuations. If these companies fail to meet earnings expectations, it could lead to more market turbulence.

Federal Reserve Meeting

Investors are also focused on the Federal Reserve’s meeting next Wednesday. They will be looking for hints about future interest rate cuts, which many expect to begin in September. How the Fed views the economy could significantly influence market direction.

Employment Data

At the end of the week, employment data, including the monthly jobs report, will be released. This will help determine whether the labor market is weakening more than expected. Strong employment data could support the case for continued economic resilience, while weaker data might raise concerns about the economy’s health.

Market Sentiment

Bryant VanCronkhite, a senior portfolio manager at Allspring, highlighted the market’s current nervousness. He noted that investors are questioning the high prices of tech stocks while also fearing that the Fed might not manage to avoid an economic downturn. This uncertainty has led to significant market reactions.

Sector Shifts

Recently, there has been a shift from high-flying tech stocks to other sectors like small caps and value stocks, such as financials. The Russell 1000 Value index has risen over 3% this month, while the Russell 1000 Growth index has fallen nearly 3%. The small-cap-focused Russell 2000 is up almost 9%, whereas the S&P 500 has lost more than 1%.

Looking Ahead

Keith Lerner, chief market strategist at Truist, suggested that even strong earnings might not be enough to lift the market in the short term. He believes that the recent pullback in tech stocks means that any gains could quickly be sold off by investors.

Economic Outlook

Any signs that the Fed is worried about a worse-than-expected economic downturn could unsettle investors. Mixed economic signals, like faster-than-expected GDP growth paired with declining manufacturing activity, add to the uncertainty.

Currently, markets expect the Fed to start cutting interest rates in September, with a total of 66 basis points in cuts by the end of the year, according to CME’s FedWatch Tool.

Charles Lemonides, head of hedge fund ValueWorks LLC, sees the recent market selloff as a healthy correction. He believes that, in the long run, growth stocks will drive the market to new highs. However, the upcoming week will be critical in determining the market’s near-term direction.