The risk-off sentiment that has dominated markets is certain to continue in the next week, with four out of seven megacap corporations set to report earnings. Data from the United States will provide investors with another update on the economy’s strength. Oil prices are expected to continue volatile, and the European Central Bank will issue its latest interest rate decision.
1:Risk-off mood
Markets are in a risk-off attitude, with investors concerned about the potential of additional interest rate rises and the expansion of the Israel-Hamas war. Last week’s earnings announcement from Tesla (NASDAQ: TSLA) was likewise less than stellar.
The CBOE Volatility Index, Wall Street’s most widely monitored barometer of investor jitters, finished Friday at its highest level in over seven months. The Dow was down 1.6% for the week, the S& P 500 was down 2.4%, and the Nasdaq was down 3.2%.
The benchmark 10-year Treasury yield fell on Friday, a day after reaching 5% for the first time since July 2007 in response to Fed Chair Jerome Powell’s comments.
As a result, investors have flocked to conventional safe-haven assets such as the dollar and gold, as well as short-term Treasuries or money-market funds, which have been generating more appealing returns since interest rates began to rise early last year.
2:Megacap earnings
The third-quarter earnings season is already started, with reports from four mega-cap corporations expected this week, in what will be a significant test for a group of equities that have powered the S& P 500 higher this year.
Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL) are scheduled to release earnings on Tuesday, Meta Platforms (NASDAQ: META) on Wednesday, and Amazon (NASDAQ: AMZN) on Thursday.
These firms, together with Apple (NASDAQ: AAPL), Nvidia (NASDAQ: NVDA), and Tesla, have accounted for the majority of the S& P 500’s 10% year-to-date rise, so any poor results might have far-reaching consequences.
Coca-Cola (NYSE: KO), General Motors (NYSE: GM), Merck (NYSE: MRK), and United Parcel Service (NYSE: UPS) will also report earnings this week. Following a sluggish first half, investors are betting on an overall rebound in US earnings.
3:U.S. data
This week, market participants will get a new update on the strength of the US economy from statistics such as third-quarter GDP and the Fed’s preferred measure of inflation, the core personal consumer expenditures price index.
Economists predict that third-quarter GDP will grow at an annualized pace of 4.1%, bolstered by solid consumer spending.
The core personal consumption expenditures price index, which excludes volatile food and gasoline prices, is expected to rise 3.7% year on year.
Fed Chair Jerome Powell said on Thursday that the stronger-than-expected US economy may necessitate tighter policy, yet increasing market interest rates may make central bank intervention less essential.
4:Oil prices
Oil prices fell on Friday after the Islamist organization Hamas freed two American prisoners in Gaza, raising optimism that the Israeli-Palestinian conflict may de-escalate without engulfing the rest of the Middle East and damaging oil supply.
Brent oil futures dropped 22 cents, or 0.2%, to $92.16 a barrel.
Crude futures for November delivery in the United States slid 62 cents, or 0.7%, to $88.75 a barrel after settlement on Friday. The more liquid December crude contract ended 29 cents lower at $88.08 a barrel.
Both front-month contracts gained more than 1% for the week, marking the second consecutive weekly gain.
5:ECB likely to hold
The European Central Bank will convene its monthly policy meeting on Thursday, with the widespread consensus being that interest rates will remain unchanged.
After raising its deposit rate at each of its previous ten meetings to a current record high, the ECB has hinted that it is time to take a breather and analyze the impact of monetary tightening thus far.
Market investors will be watching for any signs of a possible last rate rise this year in December.
The Eurozone will issue carefully regarded October PMI statistics on Tuesday, ahead of Thursday’s meeting. Recent economic figures have prompted concerns about the bloc’s economic prospects, as consumer spending has weakened in the face of persistently rising inflation.
