US and European futures are trading cautiously higher as traders do not want to get ahead of themselves. Many believe that the US stock markets and European stock markets do not reflect the underlying issues in terms of price. The reason is that they think that traders and investors are too optimistic in thinking that they are out of the woods. Threats of recession are real as they can be and companies in the current quarter have already confirmed their cautious approach in their guidance.
We have only two days left for this month and generally speaking, market players believe that this month sets the tone for the rest of the year. So far, we have seen tremendous strength coming back for the US markets, but many in the market are in doubt about this rally as they believe that markets haven’t priced in the recession risk.
The Week Ahead
This is an important week for markets as several economic events will be closely watched by traders and investors. Firstly, the event which matters the most is the Fed meeting which will conclude on Wednesday. Last week, we saw the US GDP data holding on to its strength, thanks to consumer spending. This has given the Fed confidence that if it wants to increase the interest rate aggressively like before— an interest rate hike of more than 50 basis points, then the Fed can certainly do that. However, market players aren’t anticipating this, for them, it is pretty much a done deal that the Fed will increase the interest rate by only 25 basis points. This has further implications on the markets, such as how the economy will perform from there onwards. The question that traders will be focused on will be if the Fed has won the fight against inflation and more importantly if the US economy will experience a soft landing. These two are highly important for traders and investors which are going to make or break the current rally in the stock market,
The other important event which will be unfolding this week will be the US NFP data which is known as the mother of all economic numbers. The data will be released on Friday, and this event will take place after the Fed meeting. So the number is going to give us more information about whether it will be a soft landing or a hard landing. One thing we have learned from the current earnings seasons and since the beginning of this year is that several companies have reduced their workforce, and this means that we are likely to see more adverse influence on the US NFP data.
Finally, in terms of the earnings season, this week, we are going to hear more about other mega-tech companies. For instance, Advance Micro Devices will report its earnings on Tuesday and the big pharma stock Pfizer will also report its earnings on the same day. On Wednesday, we will hear from the Meta platform whose projected EPS is $2.26. Thursday will spotlight Apple, Amazon, and Alphabet, the three ‘AAAs’ will dictate the direction of the stock market. If there is any sort of disappointment in their guidance or any evidence of weak demand, we could see the US stock market losing all of its steam.
Gold prices are on the move and are still trading above an important support level of 1,900. Traders are going to be eagerly waiting for the Fed’s decision this week and we may likely see the price only consolidate until then. This is because the US GDP data was better than the expectations and the Fed is still far from reaching its goal. The Fed may likely increase the interest rate by 50 basis points. Although, the current price action indicates that the Fed will only increase the interest rate by 25 basis points.