Tech Earnings, Fed Decision to Shape Markets Amid Growing Uncertainty

Big Tech Reports This Week Could Ignite or Upset Markets

Major technology companies including Microsoft, Apple, Amazon, and Google-parent Alphabet are set to report earnings this week, results that could ignite optimism or exacerbate concerns already simmering in markets.^{1 2} With the tech-heavy Nasdaq index down over 8% to start 2024 amid rising rates and worries over consumer demand, investors are looking for these tech titans to showcase resilience.³

So far analysts remain broadly optimistic; expected year-over-year earnings growth for the tech sector in Q4 2024 stands at 2.6%, outpacing the S&P 500 average.⁴ However megacaps have set a high bar with strong pandemic-era growth. Any misses on EPS or forward guidance could further pressure fragile sentiment and valuations.⁵

With trillion-dollar market caps at stake, the reaction could reverberate through indexes. With wobbles aplenty on Wall Street to start the year, this week’s torrent of influential numbers could tip the scales towards renewed optimism or deeper unease.⁶

Fed Set for Smaller Rate Hike But Focused on Inflation Fight

The Federal Reserve concludes its first policy meeting of 2024 on Wednesday, widely expected to slow its pace of tightening with a 0.25 percentage point rate hike. But while smaller increases may be on tap, the central bank remains laser-focused on returning inflation to its 2% target.⁷

Markets are currently pricing in a terminal rate around 5%, edging away from the 5.1% peak seen earlier this month. But Chair Jerome Powell has made clear until underlying price trends cement a downturn from 40-year highs, policy will keep tightening.⁸

That puts added importance on key readings of inflation due out this week. Personal spending data lands Thursday followed by the January jobs report on Friday; both will offer critical looks into whether prolonged Fed hikes are beginning to take a toll on the economy while cooling prices. For now markets are betting the soft-landing scenario remains intact, counting on a Fed pause sometime in Q2.⁹

But risks remain tilted to the downside. An unexpected resilience in consumers or surge in wages that pushes against inflation relief would force the Fed’s hand to tighten further, heightening recession worries.¹⁰

With markets finely balanced at the start of 2024, investors will be closely tracking guidance from Chair Powell around the rate trajectory, inflation outlook, and views on financial conditions to recalibrate expectations. Any hawkish shifts stand to revive market turbulence and put gains to start the year at risk.¹¹

Investors Weigh Metals, Oil, China amid Geopolitical Risks

Equities have largely withstood hits since the start of 2024, pushing the S&P 500 up over 7% as markets focus on the potential for cooling inflation, a resilient US consumer, and the promise of recovery in China’s economy. But boiling beneath the surface are rising worries over weaker housing, ongoing supply chain issues, and rising geopolitical risks.¹²

Attacks on oil infrastructure over the weekend pushed crude above $80/barrel, reigniting energy inflation concerns and weighing on sentiment to start the week. Markets are also tracking lingering impacts to metals supply amid rail disruptions in Canada and production cuts in Chile. Further disruptions to commodity supply chains already squeezed by years of underinvestment, sanctions on Russia, and climate impacts threaten to prolong inflation.^{13 14}

The path of China’s reopening also remains crucial for the global outlook; iron ore and copper are highly tied to Chinese demand, while tech supply chains depend on smooth production. With lights coming back online, investors hope for acceleration through Q1 and Q2 and possible upside surprises relative to modest growth expectations around 5%. But any stumbles driven by renewed outbreaks or weak consumer rebound would reverberate through exposed sectors and heighten downside risks.^{15 16 17}

While most economists still forecast mild recession or resilience through 2023 in the US, risks from higher rates, squeezed consumers, or external shocks continue lurking. With markets finely poised between optimism over moderating inflation and pessimism around stubborn price pressures, surprises on either front could tip expectations towards one scenario over the other. Upcoming readings and guidance will set the tone for a pivotal first quarter.¹⁸

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