Stock investors are feeling somewhat relieved after the Federal Reserve yesterday delivered an as expected +25-basis point rate hike.
The traders are now bracing for a trifecta of big tech earnings after the market closes by Alphabet, Apple, and Amazon. Bulls were happy to hear Fed Chief Jerome Powell in his follow up press conference acknowledge that the “disinflation process has started”. However, he also stressed that it would be “very premature to declare victory” over inflation at this point. Powell also argued that the risk of not lifting rates enough to tackle inflation was greater than that of tightening too much.
Many bulls are also pointing to language in the the Fed’s policy statement that acknowledges that higher interest rates tend to have a delayed impact and that the Fed will let economic data determine how much further lifting needs to be done.
Keep in mind, the Fed doesn’t meet again until March 21-22, meaning almost two more months of data before the next interest rate decision. Bears on the other hand are pointing to language in the Fed’s policy statement that highlights the same ongoing inflationary factors of “modest growth in spending and production,” “robust” job gains, and a low unemployment rate.
Those “negatives” were also reinforced by employment data yesterday that showed the number of available jobs in December shot back above +11 million, up from 10.4 million the previous month. It was the largest gain in new jobs since July 2021. Bears also point to Powell’s insistence that the Fed has “a lot of work left to do,” which they take to mean that the central bank will follow through on lifting rates to its projected target of around +5% and hold them there indefinitely if need be to battle inflation.
It’s also worth noting that the policy decision was unanimous, indicating that not even the most dovish Fed officials think the inflation fight has gone far enough.
The Bank of England and the European Central Bank announce their policy decisions today which could impact US investor sentiment if either starts talking about ending rate hikes. Key US economic data due today includes Productivity and Costs and Factory Orders.
The main highlight today will be big tech earnings with Alphabet, Amazon, and Apple all scheduled to report after markets close this afternoon. Many tech bulls are nervous that poor results from one or more of these behemoths could quash the optimism that has recently helped boost the tech sector. Somewhat surprisingly, Meta is providing a bit of optimism after reporting better-than-expected results, including a +4% increase in daily active users.
Keep in mind Meta stock has doubled over the last three months. Beyond big tech, earnings are due today from Bristol Myers Squibb, CNH, ConocoPhillips, Deckers Outdoor, Eli Lilly, Ferrari, Gilead Sciences, Harley Davidson, The Hartford, Hershey, Honeywell, Merck & Co., Qualcomm, Shell, Skechers, SnapOn, Stanley Black & Decker, Starbucks, and Trane.
Fed’s Policy Statement. Trifecta of Big Tech Earnings