U.S. investors face a key week with a flurry of earnings and the Federal Reserve’s latest policy meeting. Major tech results along with some high-profile names will have investors looking for clues on how companies are performing.
Investors have been rattled by recent weakness in the tech sector. The AI rally has driven the U.S. bull run but this week’s results and Fed decision will show if investors still have confidence in the rally.
Last Week Market Recap:
The U.S. stock market finished lower for the second straight week as persistent volatility kept Wall Street on edge. The S&P 500 fell 0.5%. It was the second time in the past five trading sessions that the index fell more than 1% after earlier this year it had not fallen by more than 1% in a day since late July.
The Nasdaq Composite fell 0.7% on the week as semiconductor names continued to struggle. The PHLX Semiconductor Sector Index fell 3.2%.
This Week’s Key Earnings and Economic Events:
It is the busiest week of Q3 earnings, with around a third of S&P 500 firms reporting. Key names reporting on Wednesday include Alphabet (GOOGL) and Microsoft (MSFT), while Thursday sees Amazon (AMZN) , Eli Lilly (LLY), and Intel (INTC). Verizon (VZ) reports on Monday, Boeing (BA), Coca-Cola (KO) and Visa (V) report on Tuesday, Chevron (CVX), and ExxonMobil (XOM) report to finish the week.
The Federal Reserve will be in session on Tuesday and Wednesday. The Chair Kevin Warsh will give a press conference on Wednesday afternoon. Although markets are expecting rates to stay steady, any surprises could cause some market jitters.
Thursday sees two key economic releases. First, the personal consumption expenditures price index, which is the Fed's favored inflation measure. Second, third quarter GDP growth.
Key Market Catalysts to Watch This Week:
Hyperscalers’ Earnings Put AI Spending in Focus
Despite a challenging backdrop of rising Treasury yields and energy prices due to the Middle East conflict, strong U.S. earnings growth has buoyed the stock market this year. With over 100 companies reporting this week, third quarter earnings for the S&P 500 are currently up over 32% compared to last year, according to LSEG IBES.
Alphabet and Microsoft are due to report after the close of trading on Wednesday, Amazon will report on Thursday. Investors will be looking to the three Magnificent Seven stocks to see how they are progressing with their capital expenditure plans and if they are seeing a return on their significant investment in AI.
Investors Look Beyond Big Tech’s Headline Results
Investors will be looking for signs that these tech giants are seeing growth driven by their large investments in AI. Cloud performance, AI monetization, and capital expenditure will all be in focus.
Analysts are expecting Alphabet (GOOGL) to report earnings per share of $3 on revenue of $127.83 billion in its third quarter, according to fiscal.ai data. Microsoft (MSFT) is seen reporting EPS of $4.72 on revenue of $90.75 billion, while Amazon (AMZN) is expected to report EPS of $1.96 on revenue of $202.2 billion.
Intel (INTC) is also due to report this week, with analysts expecting EPS of $0.40 on revenue of $16.47 billion.
Fed Set to Hit Pause—But for How Long?
The Federal Open Market Committee begins a two-day meeting on Tuesday and is widely expected to leave its key interest rate unchanged at 3.75%-4% after a quarter point rise in September. The chances of a rate hold are around 90% according to CME FedWatch data.
Investors are not expecting a rate hike this week with fed funds futures showing less than a 10% chance, according to LSEG data. Some are also skeptical about a rate hike so close to midterm elections.
Expectations are instead for a rate hike in December with futures showing around an 80% chance. Treasury ETFs traded little changed in after hours on Friday with the iShares 20+ Year Treasury Bond ETF down 0.05% and the iShares 7-10 Year Treasury Bond ETF down 0.04%.
Fed decision, inflation, and growth figures
While the Fed is expected to leave rates unchanged in October, investors will be looking for any hawkish comments from the central bank as inflation continues to remain above its 2% target. Comments from Fed chair Kevin Warsh may give some more indication.
Key economic data this week will include U.S. third quarter GDP and September Personal Consumption Expenditures (PCE) inflation figure. This is the Fed’s favored inflation measure. The PCE figure is expected to show 0.5% growth for the month while core PCE is expected to be 0.3% according to a Dow Jones estimate compiled by MarketWatch. On an annual basis, PCE is expected to be 3.7% and core PCE 3.1%.
The PCE report comes out on Thursday along with weekly jobless claims. Initial claims were 194,000 last week, near a 57-year low.