Traders Are Flat Ahead of Fed and Big Tech Earnings

Federal Reserve Meeting

The Fed’s two-day policy meeting begins today and Wall Street widely expects officials will decide to increase interest rates by 25-basis points, versus 50-basis points in December.

This is largely due to continued signs of declining prices across multiple sectors as well as indications that consumer spending and the overall economy are slowing down. It’s a delicate balance for the Fed though, as tightening too much risks tilting the economy into recession, while ending rate hikes too soon risks inflation being reignited and the whole tightening process needing to be repeated.

The Fed’s overall demeanor and Chair Powell’s commentary after the meeting will set the tone for the stock market for the next several weeks, as there is not another FOMC meeting until late-March.

Those in the “dove” camp believe the Fed’s tightening actions have a long lag and that the central bank needs to let the data catch up to its previous moves.

The inflation “hawks” however, point to areas of stubborn price pressures such as food, shelter, and wages that they believe will take longer to cool. An important test comes today with the Q4 Employment Cost Index which has showed wage gains above +1% for five consecutive quarters now.

Earnings

Economists expect another big gain in Q4 although it is seen slowing to +1.1% from +1.2% previously. A cool down in the labor market would be equally important for longer-term earnings outlooks as payroll is the biggest expense for most companies.

Other data today includes the S&P Case-Shiller Home Price Index and Consumer Confidence.

On the earnings front, Advanced Micro Devices, Amgen, Canadian Pacific, Caterpillar, Chubb, Corning, Edwards Lifesciences, Electronic Arts, Exxon, General Motors, Marathon Petroleum, McDonald’s, Moody’s, Pfizer, Phillips 66, Snap, Spotify, StrykerUPS, and UBS all report today.

The list obviously covers a wide cross section of sectors that are going to help inform expectations for the many results still to come.

Tech investors will be closely scrutinizing both Advanced Micro Devices and Snap in particular as they look for insights into what big tech companies might deliver in the days ahead.

Facebook-parent company Meta reports tomorrow, followed by Google-parent Alphabet, Amazon, and Apple on Thursday. According to FactSet, S&P 500 companies are on track to report a -5.0% earnings decline for Q4 2022, which would mark the first year-over-year decrease in earnings since Q3 2020. For Q1 2023 and Q2 2023, analysts are projecting earnings declines of -3.0% and -2.4%, respectively.

However, full year earnings are still expected to be positive with growth of +3.4%.

It’s all about the Fed and big tech earnings these next few days.