Top 5 Things to Watch in Markets in the Week Ahead
Risk-off Mood
A risk-off mood is currently dominating the markets as investors express concerns about the potential for more interest rate hikes and the Israel-Hamas conflict spreading. The recent weaker-than-expected earnings report from Tesla has also added to the overall pessimistic sentiment. This has led to a rise in investor nervousness, with Wall Street’s volatility index reaching its highest level in nearly seven months. As a result, investors are seeking safe-haven assets such as the dollar and gold, as well as short-term Treasuries or money-market funds.
Megacap Earnings
This week will see the release of earnings reports from four megacap companies, which will be a crucial test for these stocks that have been driving the S&P 500’s gains this year. Microsoft and Alphabet are set to report on Tuesday, followed by Meta Platforms on Wednesday and Amazon on Thursday. The performance of these stocks, along with Apple, Nvidia, and Tesla, has largely contributed to the S&P 500’s year-to-date gain. Disappointing results from any of these companies could have a significant impact on the broader market.
U.S. Data
This week, market watchers will be closely monitoring the release of key U.S. economic data, including third-quarter growth and the core personal consumer expenditures price index, which is the Federal Reserve’s preferred measure of inflation. Economists are expecting the third-quarter GDP to come in at an annualized rate of 4.1%, driven by strong consumer spending. The core PCE price index, excluding volatile food and fuel costs, is forecasted to increase by 3.7% on a year-over-year basis. The Federal Reserve has indicated that the stronger-than-expected U.S. economy may warrant tighter policy.
Oil Prices
Oil prices experienced some volatility last week due to the Israeli-Palestinian conflict, with hopes of a de-escalation leading to a slight dip in prices. However, concerns about a potential disruption in oil supplies due to a region-wide conflict continue to weigh on the market. The focus remains on the Middle East, and any significant developments in the region could significantly impact oil prices. Market participants will be closely monitoring the situation for further insights into the future of oil prices.
ECB Likely to Hold
The European Central Bank (ECB) will be holding its latest policy meeting on Thursday. The consensus among experts is that the ECB will keep interest rates unchanged after a series of rate hikes over the past year. The ECB has indicated a need to pause and evaluate the impact of its monetary tightening measures. Market participants will be paying close attention to any indications of a possible final rate hike for this year, which could be announced in December. Additionally, economic data on Tuesday will provide insights into the Eurozone’s economic outlook.
