The financial market is already on the verge of new highs and every now and then every eye is concentrated on the gigantic businesses such as Tesla and Alphabet as they are about to announce their switching profits. And since the S&P 500 and Nasdaq Composite are already close to record highs, this week is also a critical one not only to investors but to the market mood as well.
The markets appear to stand their ground despite the continued concern about the interest rates and the tension about the world trade. Last week, the Nasdaq was the first in line with a jump of more than 1.6 percent, and the S&P 500 increased approximately 0.7 percent. The Dow Jones Industrial average was largely unchanged.
Big Tech under the Microscope
This week, 112 American businesses in the S&P 500 will be reporting earnings, including such big names as Alphabet (GOOGL, GOOG), Tesla (TSLA), and Chipotle (CMG). Such reports will provide some insight on whether this rally currently is being supported by good fundamentals or it is merely riding the wave of good expectations.
Fed on the Horizon Before July Meeting
The week is otherwise not so heavy in economic results, but the economic data leading to the Federal Reserve taking action on July 29-30 will be releasing information during the week with analysts fully in the blackout period up to the meeting.
The case (of a rate cut) is clear, and so is the Governor of the Federal Reserve Christopher Waller who voiced a strong argument on why a cut should happen this July. Addressing an audience in New York, he noted that existing interest rates are perhaps set too high and that deliberating till the labor market becomes soft could prove a wrong move.
- Waller said that with inflation just below its objective and the source of threats to inflation on the upside far, we can no longer wait until the labor market weakens and then we reduce the policy rate.
The markets are not so confident though. The higher-than-planned retail sales report in June, and the persistent inflation figures have made investors to generally reduce their expectations with regards to the rate cut. It is now lower than 5 percent that there will be a cut in the month of July of May which is down to 13 percent one a month ago as indicated by CME FedWatch Tool.
The Chief U.S. Economist of Citi, Andrew Hollenhorst, expects September to bring a probable cut because the labor market is cooling off, and the risks of inflation generated by tariffs are limited.
Q2 Earnings Get Off to a Good Start
The earnings season has been on a good beginning so far. Banks including big banks have managed to present results better than expected and Netflix (NFLX) defied by registering good earnings last Thursday, May 3, 2012. Both the banks and Netflix indicated a strong U.S based consumer as one of the factors influencing their performance.
FactSet reported that the S&P 500 is currently (4/1) on pace to gain 5.6 percent in the Q2 earnings growth rate against 4.8 percent last week.
Nevertheless, certain stocks have faltered although they have shown good results. Consider Netflix as a case in point: though it managed to boost its full-year revenue forecast, its stock declined by almost 5 percent on Friday. Why? The stock already gained almost 100 percent over the last months, not including the previous year, so even a good quarter was not good enough to exceed sky-high expectations.
- A general good results and guide set was not sufficient enough to meet high hopes, as Ralph Schackart, an analyst of William Blair said.
Wall Street strategies have found uneasiness in this trend as they fear that even good earnings may not continue the rally.
- Julian Emanuel of Evercore ISI pointed out, as “one of the problems is valuation”. The gains made on the market since April are an ecosystem of 30 percent, so solid reports just do enough to hold its own position, with minor disappointments plunging the market.
Is there a possibility of the Market Rally to widen?
It is also the start of the earnings season of the so-called “Magnificent Seven” tech stocks with Alphabet and Tesla the first of them.
Most of the profits growth of S&P 500 is once more anticipated to be pushed by these companies. Analysts expect the Magnificent to reduce the 14.1 percent improvement in year-on-year earnings, only 3.4 percent by the rest of the index. The Big Tech has a lot at stake.
Nevertheless, strategists are optimistic that the rally would soon spread to non-tech. In a chart that monitors the share of earnings, the remaining part of S&P 500 is likely to be more influential in the quarters ahead.
- Scott Chronert, a strategist at Citi wrote: It is time to bury the shame, it is time to pump some earnings. We want good feedback and indicators of the strength in the cyclical sectors in order to have a more balanced rally in the market.
He cautioned that the market is possibly over-anticipating real process with optimistic feelings and sky-high anticipations already understood within the existing estimates.
This Week: The Key Events to Look Out
This is a sneak peak of the economic numbers and profits to keep eyes on with the following days:
📅 Monday
- Economic Data June Leading Economic Indicators (expected -0.2%)
- Income: Cleveland-Cliffs, Domino Pizza, Steel Dynamics, Verizon
📅 Tuesday
- Economic Data: Richmond Fed manufacturing index July (ex -4)
- Income: capital one, Coca-Cola, DR Horton, Enphase energy, GM, Lockheed Martin, Philip Morris, SAP, Texas instruments
📅 Wednesday
- Economic News: MBA Mortgage Applications, June Existing Home Sales (forecast -0.7 %)
- Income: Alphabet, Tesla, Chipotle, Alaska Airlines, AT&T, Fiserv, GE Vernova, General Dynamics, Hasbro, IBM, OReilly Auto, QuantumScape
📅 Thursday
- Economic Data: Unemployed claims (predicted 230,000)
- Chicago Fed National Activity Index
- S&P Global Manufacturing, Services and Composite PMIs
- June New Home Sales slated +4.3 percent)
- Earnings: American Airlines, Blackstone, Dow, Deckers, Honeywell, Intel, and Keurig Dr Pepper, Nasdaq, Nokia, Southwest Airlines, and Union Pacific.
📅 Friday
- Economic Data: Advance June Durable Goods Orders (forecast -10.8%)
- Charter Communications profits: earnings
Final Thoughts
Markets are flirting with all-time highs and investors are trying to align themselves with inconsistent messages about the Fed, so the reports this week on earnings, especially the giants in tech, might well decide the next move in the rally. The success or failure of the rally may not be pegged on the headline numbers and much on the forward guidance and momentum in the sector. The expectations are high, at least, today, and the compensation to the companies that cannot live up to them is also not to be sneered at.
Also Read :How US-China Trade Rhetoric Moves Nasdaq Futures and Global Markets: May 2025
Also Read: Government Jobs vs Private Jobs: Which One’s Right for You?
