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Post: Market Extra: Crunch time for the stock market: What you need to know about the Fed, earnings and GDP

So much for the summer doldrums.

Stock-market investors face a full menu of potentially market-shaking events this week, including a deluge of corporate earnings results, the prospect of another supersize Federal Reserve rate hike, and a closely watched piece of economic data.

“This week will be very busy, with close to 50% of the S&P 500 market cap reporting. The [Fed’s] policy meeting, which concludes on Wednesday, and the advance estimate of 2Q GDP (gross domestic product) for the U.S., which will be released on Thursday, may also add to market volatility,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, in a note.

Earnings flood

There are 175 S&P 500 companies set to report results this week, including tech-related behemoths Apple Inc.
Google parent Alphabet Inc.

Microsoft Corp.

and Amazon.com Inc.

“Investors won’t want to touch Nasdaq stocks until we hear from Alphabet [Tuesday] and if they don’t like what they hear they may wait to see Thursday’s massive results from Apple and Amazon provide any reasons to be optimistic with tech stocks,” said Edward Moya, senior market analyst for the Americas at Oanda, in emailed comments.

Earnings Watch: Big Tech earnings are about to determine the direction of the market

The Fed

The Federal Reserve’s policy-setting Federal Open Market Committee will conclude a two-day meeting on Wednesday that’s expected to produce a hike of 75 basis points, or three-quarters of a percentage point.

“The Fed’s move and comments around these economic data are the most powerful single element of the week. Uncertainty is high as to the Fed’s willingness to keep tightening if the economy slows significantly, with many forecasts projecting that the Fed will reverse and start cutting rates by the summer of ’23 as the economy slows and inflation wanes,” said Louis Navellier, founder of Navellier & Associates, in a note.

The S&P 500

has bounced more than 8% off its mid-June low, with investors tying improved sentiment in part to expectations that inflation has neared a peak and that the Fed will soon move to pause its aggressive series of hikes in an effort to avert a recession.

See: Wednesday’s Fed meeting will be analyzed for these 4 things

Skeptics, such as Morgan Stanley’s Mike Wilson, say such expectations underestimate the Fed’s resolve to ensure that it gets inflation running at its highest in more than four decades under control. They see the Fed maintaining an aggressive tightening stance until it sees convincing signs inflation is on a lasting downward path — evidence that might not come until the economy is firmly headed toward or already in recession.

Read: Stock-market investors too quick to price in Fed ‘pause’. That could doom the bounce, says Morgan Stanley’s Wilson.

Second-quarter GDP

Speaking of recession, data on second-quarter gross domestic product will be in the spotlight on Thursday morning. Economists are penciling in a 0.3% annualized rise but the Atlanta Fed’s GDPNow model is forecasting a 1.6% contraction after a fall of the same amount in the first quarter.

Consecutive quarters of contracting GDP are often described as a “technical” recession. However, a still robust labor market and the inventory-driven nature of the first-quarter decline make it unlikely the National Bureau of Economic Research, the official arbiter of the U.S. business cycle, would be prepared to officially declare a recession.

Preview: A ‘fake’ recession? The U.S. economy is in decent shape for now despite weak GDP

The bottom line is that investors are growing nervous about the economic outlook.

“With consumer sentiment improving, but still sitting at all-time lows and manufacturing surveys coming down from their highs, deteriorating fundamental data continues to point to an elevated chance of an economic downturn,” wrote. Jason Pride, chief investment officer of private wealth, and Michael Reynolds, vice president of investment strategy at Glenmede, in emailed comments.

“Given rising recession risks, investors should seek opportunities to reduce portfolio risk on market strength,” they said.

Stocks were in a holding pattern Monday, flipping between small gains and losses as investors awaited this week’s news flow. The Dow Jones Industrial Average

was off 0.1% in afternoon action, while the S&P 500 ticked down 0.3% and the Nasdaq Composite

slumped 0.9%.

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