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 tech.

 

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 thumb. 

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 about-to-be-reported quarter. 

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&ampP 500

The second quarter earnings season has been surprisingly upbeat. So far, 75.5% of the S&ampP 500 companies have reported better-than-expected earnings, according to the Refinitiv I/B/E/S data. Key companies, including Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) are slated to release their second-quarter earnings next week. 

The aggregate S&ampP 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&ampP 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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