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Tech Titans’ Earnings Take Center Stage as the Fed ponders rates and China Grapples with Housing Woes

By:JJ Kinahan

Markets are expected to remain subdued today ahead of a busy week with earnings reports, the FOMC announcement and an employment report

  • Tech giants headline earnings have surged, the Fed is about to make an interest-rate decision and global challenges are affecting the markets.
  • Economic indicators are signaling moderation, robust consumer spending and a pivotal week for corporate earnings.
  • Evergrande's turmoil, Middle East tensions and looming rate decisions shape a complex global market landscape.

Following five consecutive days of reaching new highs, the S&P 500 experienced a minor setback on Friday, closing down by 0.1%, while the Nasdaq Composite dropped 0.4%. Despite that, the S&P 500 is up 2.5% for the year, driven by the tech stocks that have propelled the technology subsector of the index to a 5.9% increase. However, the focus now shifts to the upcoming week, expected to be the busiest in terms of stock market activity this year.

The spotlight of the week is on earnings season, with 106 companies from the S&P 500 set to report, including tech giants like Google parent Alphabet (GOOG), already up 8% this year. Microsoft (MSFT), holding the title of the world's most expensive company with a market cap of $3 trillion, is also in the earnings lineup, along with other heavyweights scheduled to release earnings tomorrow after the market close. Thursday will see reports from Amazon (AMZN), Apple (AAPL) and Meta (META), the latter having nearly tripled in 2023 and showing an 11% increase to start the year.

Watching for signs of an interest-rate cut

Amid the earnings reports, the Federal Reserve Open Market Committee (FOMC) is set to announce its decision on interest rates. While it is widely expected rates will remain unchanged at this meeting, the post-meeting press conference will be closely watched for insight into the Fed's outlook and potential signals for rate cuts at the March meeting. Currently, the CME indicates a 50% probability of a rate cut in March.

The Fed's decision-making is significantly influenced by economic indicators, including the recently released personal consumption expenditures (PCE) report, which aligned with expectations. The report indicated prices are moderating, with Core PCE showing a slightly weaker-than-expected increase of 2.9% year-over-year. Another crucial report for the Fed, the employment situation, is slated for release on Friday.

Last week’s earnings reports

On the earnings front from the previous week, American Express and Visa provided positive signals, with American Express offering an optimistic outlook for the year and Visa maintaining its expectations. Together, these reports suggest that consumer spending remains robust. This week, UPS is set to report, and its earnings are considered a valuable gauge for consumer spending trends. Analyzing UPS alongside Visa and American Express reports can provide a comprehensive view of the overall economic landscape.

Internationally, China grapples with ongoing challenges in its real estate sector,. A Hong Kong court ordered Evergrande to liquidate after its failure to restructure a significant debt of $300 billion. Meanwhile, tensions in the Middle East are heightened, with three U.S. service members killed in a drone attack in Jordan. The U.S. is anticipated to respond, potentially influencing oil prices, which are currently slightly down in premarket trading, just below $78 per barrel.

For today, markets are expected to remain relatively subdued ahead of the impending busy week. With earnings reports, the FOMC announcement and the Friday employment report on the horizon, today might serve as a period of preparation before the flurry of activity begins. The advice remains consistent: stick with your investing plans and long-term objectives in navigating the dynamic market conditions.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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