The busiest week of the summer on Wall Street has arrived.
More than 150 S&P 500 companies are set to report quarterly results in the week ahead, headlined by Microsoft (MSFT), Alphabet (GOOGL), and Meta (META). Amid this earnings rush, the Federal Reserve will announce its latest policy decision on Wednesday afternoon and is expected to announce another 0.25% increase in its benchmark interest rate.
The economic calendar will also keep investors busy with the first read on second quarter GDP, two looks at consumer confidence, inflation data, and an initial look at manufacturing activity in July all on the schedule.
This headline blitz will follow a week that saw the Dow Jones Industrial Average (^DJI) take on a leadership role in the market, with the Blue Chip index rising 2.1% during the week and finishing a 10th straight winning session on Friday. Meanwhile, the Nasdaq Composite (^IXIC) served as the week's laggard, falling 0.6%.
The benchmark S&P 500 split the difference, rising 0.7%.
The Nasdaq was dragged down by results from Netflix (NFLX) and Tesla (TSLA) that prompted investors to pare their exposure to two of this year's tech highfliers. Whether this pattern continues to play out during earnings season will be one of this week's key storylines for investors.
End of the Fed hikes?
The US central bank will announce its latest monetary policy decision at 2 p.m. ET on Wednesday with Fed Chair Jay Powell set to hold a press conference a half hour later.
Data from the CME Group on Friday showed markets pricing in a 99.8% chance the Fed raises its benchmark interest rate target range by another 0.25% to 5.25%-5.5%. This would bring the fed funds rate to its highest level since 2001.
"After remaining on hold at its June FOMC meeting, we look for the Fed to raise the target range for the Federal funds rate by 25bp to 5.25-5.50%," Bank of America economist Michael Gapen wrote in a note on July 19. "The cooling of the economy is only happening slowly, and we think most committee members believe further rebalancing of supply and demand is needed to ensure disinflation will continue."
Powell's comments will be in focus for investors as the debate is sure to continue through the summer over whether an additional rate increase later this year will be necessary.
"In the press conference, we look for Chair Powell to provide more clarity on what markers the Committee would need to see to be comfortable moving into an extended hold," Morgan Stanley's chief US economist Ellen Zentner wrote in a note on Thursday. "For example ... Governor Waller expressed that if the next two readings on core inflation 'look like the last two, the data would suggest maybe stopping.' A similar message from Powell would suggest to us a lengthy hold is in store."
On the corporate side, Microsoft and Alphabet are set to report earnings on Tuesday after the market closes. On Wednesday, Meta and Chipotle (CMG) will highlight the schedule.
Investors will also keep a close eye on results from Verizon (VZ) and AT&T (T) — due out Tuesday and Wednesday, respectively — with these companies set to report for the first time since an early July report from The Wall Street Journal about lead-sheathed cables laid by telecom giants sent those stocks sharply lower.
Big tech earnings should provide investors with a fresh update on the latest in artificial intelligence and the state of the cloud industry.
As recently as last week, AI headlines were still pushing stocks higher. Apple (AAPL) shares popped nearly 1% after a report the tech giant may be building its own form of ChatGPT. Meanwhile, Microsoft stock jumped after the company announced a $30-per-month AI-related integration that will be tied to Microsoft 365.
Some analysts think that catalyst could be enough to counteract any slowdown in growth that might still be occurring with the company's cloud unit, Azure.
Speaking with Yahoo Finance Live last week, Independent Solutions Wealth Management portfolio manager Paul Meeks said last quarter, companies had a simple message on AI-related initiatives: "I'm doing it."
This quarter will be a different story.
"Now what I need to see are some tangible benefits that are going to positively impact these companies' P&L," Meeks said. "What are they doing specifically? How are they going to monetize it? And when they monetize it, when do we start to see the goodies?
"Because everybody can talk the marketing spin, but I need to see some tangible impacts on the P&L. You better give it that to me. At least guide to it for the next couple of quarters, because I'm going to start to believe that it's all smoke."
The coming week will also provide more data on the health of the consumer, with results from McDonald's (MCD), Domino's (DPZ), and Chipotle being closely watched for signs of trade downs or pullbacks in spending.
Last week, earnings from big banks and airlines largely showed a consumer that's still willing to spend, a bullish sign not just for these companies but the overall economy as the US continues to fight off a recession.
Still, companies are reporting earnings declines.
After reports from 18% of the companies in the S&P 500, 75% have reported earnings per share above estimates, below the five-year average of 78%, per FactSet. Meanwhile, 61% of companies have reported revenues above estimates, below the five-year average of 69% and the 10-year average of 63%.
Entering the crucial earnings week, the stock market rally has notably broadened.
"Profit cycle is what matters for Value/cyclicals vs. Growth," Bank of America strategist Savita Subramanian wrote on Friday. "We expect 2Q to be the trough in EPS, a catalyst for cyclicals."
Economic data: S&P Global US manufacturing PMI, July, preliminary (46.1 expected, 46.3 previously); S&P Global US services PMI, July, preliminary (54.0 expected, 54.4 previously); S&P Global US composite PMI, July, preliminary (53.0 expected, 53.2 previously)
Economic data: Conference Board Consumer Confidence, July (112 expected, 109.7 previously); S&P CoreLogic Case-Shiller, 20-City composite home price index, month-over-month, July (+0.7% expected, +0.91% previously); S&P CoreLogic Case-Shiller 20-City composite home price index, year-over-year, July (-1.6% expected, -1.7% previously)
Earnings: Alphabet (GOOGL), Microsoft (MSFT), Cal-Maine Foods (CALM), General Electric (GE), General Motors (GM), Raytheon Technologies (RTX), Pac Western Bank (PACW), Snap (SNAP), Spotify (SPOT), Texas Instruments (TXN), Verizon (VZ), Visa (V), 3M Company (MMM)
Economic data: New home sales, June (722,000 annualized rate expected, 763,000 previously); New home sales, month-over-month, June (-5.4% expected, +12.2% previously); MBA Mortgage Applications, week ending July 21 (+1.1% prior); FOMC Rate Decision, upper bound (5.5% expected, 5.25% previously); FOMC Rate Decision, lower bound (5.25% expected, 5% previously)
Economic data: Second quarter GDP, first estimate (+1.7% annualized rate expected, +2.0% previously); First quarter personal consumption, first estimate (+1.2% expected, +4.2% previously); Initial jobless claims, week ended July 22 (235,000 expected, 228,000 previously); Continuing jobless claims, week ended, July 15 (1.75 million expected, 1.75 million previously); Pending home sales, month-over-month, June (-0.5% expected, -2.7% previously)
Economic data: Personal income, month-over-month, June (+0.5% expected, +0.4% previously); Personal spending, month-over-month, June (+0.4% expected, +0.1% previously); PCE inflation, month-over-month, June (+0.2% expected, +0.1% previously); PCE inflation, year-over-year, June (+3.0% expected, +3.8% previously); "Core" PCE, month-over-month, June (+0.2% expected, +0.3% previously); "Core" PCE, year-over-year, June (+4.2% expected; +4.6% previously); University of Michigan consumer sentiment, July, final reading (72.6 expected, 72.6 previously)