S&P 500 Analysis: Top Things to Know to Start Your Trading Week

There will also be data on inflation, consumer confidence, and second quarter gross domestic product (GDP). On the earnings front, big tech results will be the major highlight with results due from Google-parent Alphabet and Microsoft on Tuesday, Meta on Wednesday, and Amazon on Thursday. About 18% of S&P 500 companies have reported Q2 results so far and 75% have topped estimates (but estimates are low). In fact, S&P 500 companies are on track for a Q2 earnings decline of -9%, according to FactSet, which is down from -7.2% the previous week and -7.0% at the end of June.

Fed

The Federal Reserve is also in the spotlight this week, with officials meeting on Tuesday and Wednesday. The latest monetary policy decision and a press conference with Fed Chair Jerome Powell are both scheduled for Wednesday afternoon.

The big question is whether this will be the last rate hike for this cycle, although the Fed is not likely to provide a definitive answer at this point. The CME Fed Watch Tool shows traders give nearly 100% odds of a +25 basis-point hike on Wednesday, which would push the Fed’s benchmark rate to a range between 5.25%-5.50%. Odds favor the Fed maintaining that rate for the rest of 2023 (65.3%) versus another +25 basis-point hike (23.6%) by the end of the year.

Traders have also lowered their odds of any rate cuts until mid-2024. Keep in mind, the Fed’s next meeting isn’t until September 19-20 (no August meeting), meaning two months of data before the next decision. Investors are also anxious to hear the latest policy updates from the European Central Bank on Thursday and the Bank of England on Friday.

There is some concern among Wall Street insiders that the Fed may be growing uncomfortable with the ongoing stock rally. That’s largely due to the so-called “wealth effect,” which is an economic theory suggesting that people spend more as the value of their assets rise.

Keep in mind, home prices are still near record-highs, jobs remain plentiful, and consumer confidence is the highest its been since January 2022. Bears argue that these things all point to potential for stronger consumer spending ahead, which could interrupt the current disinflation trend and require the Fed to keep rates higher for longer, or possibly even hike further.

Energy

There are also growing concerns that food and energy prices may shoot higher again. Food prices are being impacted by Russia’s termination of the Black Sea grain deal, as well as declining harvest prospects for several key crops across the globe.

On the energy front, some oil insiders are warning that increasing oil demand from China and India is going to start outstripping supply in the second half of the year. While the Fed prefers inflation gauges that strip out food and energy, these costs (particularly energy) nonetheless filter out into the wider economy and can impact inflation across nearly every sector.

In Conclusion

Key US inflation updates this week include flash PMIs today (Monday) and the PCE Prices Index on Friday. It’s also worth noting that the Fed is expected to unveil new bank capital requirements on Thursday. Regulators have already warned that big Wall Street banks might face a +20% average increase in overall capital requirements. A greater number of banks are also expected to be subject to the Fed’s capital requirements, with the agency likely lowering the threshold to $100 billion in assets, down from $250 billion currently.

Bottom line, this is going to be an extremely busy week for major headlines.