Wall Street: Crucial Week Ahead for the S&P 500
The last of July is poised to be
the most crucial week this summer, with key economic and earnings
data that will shape the stock market trends and potential
recession concerns. The Fed is expected to announce a 0.75% rate
hike as inflation hovers near the highest levels since 1981. In
addition, all eyes are on the quarterly earnings data of big
Fed rate hike and GDP growth
The Federal Open Market Committee
(FOMC) is scheduled to commence its 2-day meeting this Tuesday,
following which the federal funds rate hike will be announced.
Powell is expected to stick to a 75-basis point rate hike this
month, despite sky-high inflation rates.
Also, consumer confidence and new
home sales data are scheduled to release on the same day, which
might signal economic health. Lower consumer confidence and
declining home sales might indicate sooner-than-expected economic
contraction. This, in turn, might prompt a less aggressive rate
hike approach as the economy cools rapidly.
On Thursday, July 28, the
quarterly GDP data for the U.S. economy is scheduled to be
released. After a worse-than-anticipated 1.6% decline in GDP in the
first quarter, economists and analysts are awaiting the second
quarter data. In fact, this data will reflect whether the U.S.
economy is officially in recession. Two consecutive quarters of GDP
decline signals a recession, as per the generic rule of
The extensively followed Atlanta
Fed GDP Now tracker is currently predicting a 1.6% annualized GDP
decline in the fiscal second quarter. On the other hand, Dow Jones
economists are expecting a 0.3% increase in GDP in the
Regarding this, Leo Grohowski,
chief investment officer at BNY Mellon Wealth Management said, “We
could get a back-of-the-envelope recession with the next GDP
report. There’s a 50/50 chance the GDP report is negative.” KPMG
Chief Economist Diane Swonk, on the other hand, has predicted a
1.9% decline in GDP, but employment to remain strong, thereby
indicating a mere slowdown and not a recession.
Upcoming earnings season key for the S&P
The second quarter earnings
season has been surprisingly upbeat. So far, 75.5% of the
S&P 500 companies have reported better-than-expected
earnings, according to the Refinitiv I/B/E/S data. Key companies,
including Apple (NASDAQ: AAPL), Microsoft
Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL)
are slated to release their second-quarter earnings next
The aggregate S&P 500
earnings are expected to rise by 6.2%, an upward revision from the
5.6% growth expected last to last week. The bearish market
sentiment has been reversing over the past month thanks to the
strong earnings growth, with the S&P 500 index rising 1.28%
over this period. The tech-heavy Nasdaq Composite index rose 1.95%
over the past month.
The bottom line
The markets are expected to be
highly volatile next week, given the anticipated economic and
market data releases. Bond yields slid sharply last week, due to
weak Purchasing Manager’s Index (PMI) reports released by the U.S.
and several European economies. the slowdown in manufacturing
activity has amplified the recessionary concerns lately, despite a
relatively upbeat stock market.
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