Wall Street Week Ahead: With Fed mum on next move, investors look to earnings
NEW YORK: Investors head into next week weighing familiar concerns over interest rates, inflation and geopolitical tensions against another robust earnings season that continues to keep stocks supported. With little fresh guidance from policymakers and uncertainty brewing over the US Federal Reserve’s next move, many investors are increasingly looking to corporate earnings — fueled in part by…
As Wall Street enters the upcoming week, investors are grappling with a mix of concerns surrounding interest rates, inflation, and geopolitical tensions, while also looking to the earnings season for support. With the Federal Reserve offering little guidance on its next move, analysts and strategists are increasingly turning to corporate earnings reports to validate bullish assumptions and mitigate macroeconomic risks.
Shawn Snyder, an economic strategist at Potomac Fund Management, emphasizes that the Federal Reserve remains the primary driver of market movements, but investors are increasingly relying on earnings guidance due to the ambiguous policy signals. The upcoming Jackson Hole symposium, scheduled for August 27 to 29, may provide some clarity, but until then, investors are focused on real Treasury yields, which represent inflation-adjusted returns, and their impact on asset prices.
Rising yields can weigh on technology stocks and long-duration assets, particularly those tied to AI infrastructure and hyperscalers, which have been major drivers of the market this year. The S&P 500 set a record high on Thursday, buoyed by gains in technology shares and falling oil prices, which have increased risk appetite following a softer-than-expected producer price report.
Despite the positive market sentiment, investors remain cautious about the possibility of inflation reaccelerating, with concerns about rising energy prices and stalled US-Iran talks potentially spiking oil prices and putting pressure on consumer prices and bond yields. However, strong corporate earnings have helped temper volatility, with 85% of S&P 500 companies reporting earnings that beat estimates, with profits surging 32.7% excluding mark-to-market gains at Alphabet and Amazon.
Analysts and strategists note that the earnings strength, driven largely by companies benefiting from AI-related infrastructure spending, is a significant factor in maintaining market stability. For Chris Grisanti, chief market strategist at MAI Capital Management, hyperscaler spending plans and AI-related investments are key areas to watch, with Big Tech's AI spending projected to exceed USD700 billion this year.
While concerns remain about the financial viability of hyperscalers, Grisanti dismisses these worries, pointing to the strong balance sheets of these companies and the strong demand for their services. Despite the optimistic outlook, investors acknowledge that oil prices and geopolitical events could complicate the outlook for inflation and interest rates.
However, the strong earnings performance of corporate America is seen as the current strongest defense against these risks, with many expecting it to become even clearer as the second half unfolds.
Written by urgent.news from Business Recorder's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
