Fed meeting, Apple earnings: What to know this week

After a busy week for Big Tech earnings, the market will be focused on two key events in the week ahead: the Federal Reserve’s latest policy decision and earnings from Apple (AAPL). With the S&P 500 (^GSPC) last week falling into correction territory, investors will look to the US central bank and the biggest company in the index to steady things during what’s been a challenging few months for investors. A more than 2% decline across all three major indexes last week brought losses since Aug. 1 to 10% for the S&P 500, 11.5% for the Nasdaq (^IXIC), and 9% for the Dow Jones Industrial Average (^DJI). Quarterly reports from Alphabet (GOOG, GOOGL) and Meta Platforms (META) received a chilly reception last week, while results from Microsoft (MSFT) and Amazon (AMZN) were more positive, but not enough to lift investor spirits broadly. In addition to Apple’s quarterly report, results from McDonald’s (MCD), AMD (AMD), Caterpillar (CAT), Qualcomm (QCOM), Eli Lilly (LLY), Pfizer (PFE), Airbnb (ABNB), and DoorDash (DASH) will highlight a jam-packed week for corporate results. Away from the Federal Reserve’s latest policy announcement, the economic calendar in the week ahead will bring investors a crucial October jobs report, key readings on manufacturing activity, and an update on job openings. Strong GDP data and the Fed’s preferred inflation measure last week bolstered the case for the Fed to keep rates elevated for an extended period. And perhaps kept September’s forecast for one more rate hike before this cycle is over in play. “[We] expect growth to slow in 4Q, but not significantly below trend,” wrote Bank of America economists led by Michael Gapen in a note on Friday. “Powell’s speech on October 19 suggested that the Fed could hike further in response to strong activity data. That is, it might not wait for inflation to increase again because it is aiming to pre-empt inflation. Given this, we think there is enough momentum in the economy to warrant one more hike.” Market expectations as of Friday afternoon, however, were still pricing in a 97% chance the central bank holds rates in a range of 5.25%-5.50% at the conclusion of its two-day meeting on Wednesday. Michael Pearce, lead US economist at Oxford Economics, argued in a note last week that this economic data is only part of what is likely to drive the Fed to sit tight this week. And only part of what might keep rates elevated for the foreseeable future. “The surge in bond yields means the Fed is likely to remain on hold next week and probably in December too,” Pearce wrote. “The stronger incoming data mean officials won’t rule out an additional rate hike, but it’s clear most officials see that as conditional on a continued re-strengthening in job growth and inflation, which we think is unlikely. We think the next move will be a cut, though the risks are skewed towards that loosening coming later than the May 2024 cut in our baseline.” According to data from FactSet, with 49% of the S&P 500 having reported results through last week, blended annual earnings growth (which combines what companies have reported with analyst forecasts for upcoming results) stood at 2.7%, putting the index on pace to snap a three-quarters-long streak of earnings declines. But this turnaround in earnings today is in part what helped drive stocks earlier this year. Today’s worries from investors, then, are centered rising bond yields and what the Fed’s “higher for longer” regime could mean tomorrow. Still, some on Wall Street see the current market correction as further advanced in age than Friday’s headlines may suggest. “Markets now better reflect some of the many uncertainties that persist,” said Keith Lerner, chief market strategist at Truist Wealth, in an email on Friday. “Indeed, the S&P 500 is now down about 10% since its July high, with the average stock, as proxied by the S&P 500 Equal Weight Index, down 13%, small caps down 18%, and Real Estate down over 20%, for example. This suggests to us the correction is further along than many recognize.” Lerner also noted the so-called “Magnificent Seven” stocks — Apple, Alphabet, Microsoft, Amazon, Meta, Tesla (TSLA), and Nvidia (NVDA) — are down an average of 17% from recent highs, adding, “toward the latter stages of a corrective phase, the leaders succumb to the broader market weakness.”