The Week Ahead: Big Fed Interest Rate News and an Earnings Avalanche

by | Jul 25, 2022 | Market Outlook

Let’s take a quick look at the week ahead…

One aspect of the markets in 2022 that’s different from the past five years is that when Wall Street used to rally off lows, volatility would collapse… And you wouldn’t have a big drawdown for weeks or even months at a time. 

For example, we rallied hard last week… only to have the market take a big dump on Friday with the Nasdaq falling almost 2% on the day.

Even with Friday’s sell-off, markets still closed firmly higher for the week with the Russell 2000 and Nasdaq both up over 4%.

Russell 2000 chart

Which leaves us with the billion-dollar question: now what? 

There’s A TON of information to chew on this week with many market-moving catalysts looming. 

The Week Head: The Economic Numbers That Matter

We have the Federal Reserve meeting, where we already know it will deliver a 75-basis-point hike… But could it shock the world and raise its benchmark interest rate by 100 basis points?!

The Fed funds rate is at 1.5%, and look at all the carnage we’ve already seen in the markets. At 2 p.m. EDT Wednesday, the central bank will look to take it to 2.25%… 

As always, I like to play Fed day tight. And the REAL move doesn’t usually happen until the next morning. The market tends to knee-jerk in the last two hours of trading after the announcement, so try not to get caught in that move or worse, chase it into the close. I typically expect a hard flip-flop the following morning.

While I think 100 basis points would be aggressive and lead to a knee-jerk sell-off, you could buy that bottom on Wednesday afternoon. To be clear, I think there’s less than a 10% chance of that scenario playing out…

Microsoft After the Close Tuesday 

Some market heavyweights will announce earnings this week including Mr. Softee — Microsoft Corp. (Nasdaq: MSFT). We’ve seen a mixed bag thus far in earnings season with banks like Goldman Sachs Group Inc. (NYSE: GS) and Citigroup Inc. (NYSE: C) delivering solid numbers, and big disappointments from Verizon Communications Inc. (NYSE: VZ) and Snap Inc. (NYSE: SNAP). 

Tech has been the most solid catalyst for overall stock buying the past 25 years, so if last week’s rally has real legs, you’ll need big wins from stocks like MSFT.

With many thinking we’re already in a recession, all eyes will be on MSFT’s forward guidance. Earnings per share was already guided slightly lower… so it could get ugly if it misses on already lowered guidance. 

A Microsoft chart

MSFT is pricing in an implied move of 4.27%, so keep that in mind with any options you might buy! 

I expect a negative move, like a 4% to 5% dip… to a super negative move of around a 10% to 15% drop, taking the stock, which is around $261 a share this morning, back down under $250 a share.

Remember to keep any eye on your inbox Friday for a recap of the week to see how it all played out!

LFG!

Jeff Zananiri
Joy of the Trade, WealthPress

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WRITTEN BY<br>Jeff Zananiri

WRITTEN BY
Jeff Zananiri

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