Next week will be dominated by earnings announcements from major technology companies.
Microsoft (MSFT), Alphabet (GOOGL), Meta (META) and Amazon (AMZN) will release their financial reports, along with updates from Coca-Cola (KO) and Exxon (XOM), promising a busy week for corporate disclosures.
Economic observers will be watching Thursday’s release of the initial GDP estimate for the third quarter, which is expected to reveal 4.3% annualized growth for the U.S. economy. Friday will also offer new insight into the Federal Reserve’s preferred measure of inflation.
These reports from the technology giants come at a crucial time for the markets. Recent 16-year record highs in Treasury yields and uncertainties around the Federal Reserve’s path in its interest rate adjustments have cast a shadow over stocks over the past month.
In the previous week, the Nasdaq (^IXIC) saw a decline of more than 3%, while the benchmark S&P 500 Index (^GSPC) and the Dow Jones Industrial Average (^DJI) saw declines of more than 2% and 1.6%, respectively.
The Federal Reserve is entering a blackout period this week ahead of its next meeting, which will begin on October 31. Current market sentiment suggests a greater than 96% chance that the Federal Reserve will not raise interest rates during this meeting.
During his speech at the Economic Club of New York on Thursday, Powell gave an assessment of the current economic outlook. He still perceives inflation as “too high” and potentially threatened by the “highly resilient economy.”
Economists believe this speech may have effectively ruled out a rate hike in November, but left the door open for future considerations.
EY Chief Economist Greg Daco said in a research report on Friday: “The recent series of positive economic surprises will keep the Federal Reserve on high inflation alert, and while it will not tip the Federal Open Market Committee toward another rate hike at the November meeting, the December meeting will remain largely ‘live.'”
Next week will be a crucial time for the metrics the Federal Reserve watches closely: economic growth and inflation. Thursday’s GDP release is expected to represent the peak of economic growth in 2023, following a series of strong data that has postponed concerns about a recession until 2024.
Friday’s data is expected to reveal a 3.7% year-on-year increase in “core” PCE (personal consumption expenditure), which excludes food and energy costs, for September. This is a slight drop compared to 3.9% in August. The Federal Reserve’s inflation target is 2%, on average. Compared to the previous month, the “core” PCE is expected to show an increase of 0.3% in September.
The interaction between these two figures will be closely followed in the coming months. Bank of America U.S. economist Michael Gapen clarified his interpretation of the central bank’s recent commentary on these metrics in a weekly research note on Friday.
“Either growth slows or inflation starts to rise,” Gapen said. “If growth slows, the Federal Reserve may not need to implement further increases. However, if inflation recovers, additional rate increases may be warranted.”
On the business front, four of the “Magnificent Seven” stocks that have been the driving force behind the 2023 stock market surge will provide their quarterly updates. These updates can set the stage for stock moves that could influence the three major indices.
In an October 12 note, a Bank of America investment strategist noted that without the Magnificent 7, the S&P 500 would be just below 3,900, down about 10%.
At the individual company level, the top four tech companies are poised to offer insight into consumer spending, advances in artificial intelligence, and the evolution of the advertising industry. Additionally, revenue figures from the cloud segments will be closely scrutinized at both Microsoft and Amazon.
Also read: Big Tech Giants Rescue S&P 500 Gains Amid Market Worries