The Fed And Apple Highlight A Busy Week Ahead

Key Takeaways

• Tech Stocks Resuming Leadership
• AMD And Apple Report Earnings This Week
• Fed Expected To Raise Rates On Wednesday

Markets recorded gains last week following some good news from the tech sector and hopes that following this week’s increase in interest rates, the Fed tightening cycle will come to an end. The S&P 500 and Nasdaq Composite both ended the week about 1% higher. This week, investors will turn their attention to more economic and earnings data.

The tech sector has really been the story of late. According to a Wall Street Journal article, the large tech companies who reported earnings last week added $320 billion in market cap. Although many of these companies remain well off all-time highs, the rebound in these names is impressive. As I see it, two questions remain. First, if the Fed is in fact done raising rates, can these companies accelerate their growth? Second, in light of the massive number of layoffs we’ve seen in the past year, how will demand be impacted?

Growth companies in general are reliant on borrowing and the increases we’ve seen in interest rates have had a direct effect on borrowing costs. If the current rate hike cycle is done, it makes it much easier for these firms to forecast borrowing costs moving forward. At the same time, we’ve seen a slowdown in cloud services at places Microsoft
MSFT
and Amazon Web Services. That’s partly attributable to fewer workers at other companies and the subsequent slowing in demand. Therefore, while the recovery in these stocks of late has been notable, there are still some potential headwinds.

As for tech companies, we have a few reporting earnings this week. The two I’ll be watching most closely will be Advanced Micro Devices
AMD
, who reports Tuesday after the close and then Apple
AAPL
on Thursday. Last week, Intel
INTC
reported sizeable losses in their earnings announcement; however, they also noted the outlook for demand seemed to be improving. It will be interesting to hear what AMD has to say and if they see a similar future. Then on Thursday, we’ll hear from Apple. It’s hard to overstate the effect Apple can have on markets but I’ll be particularly interested in their forward looking comments.

Throughout the week, there will be some important economic data. On Tuesday, the latest read on job openings, or what’s commonly known as the JOLTs report, is scheduled for release. Then on Friday, we’ll get a look at April employment. Prior to that number; however, we’ll hear from the Fed on Wednesday, at which point they are expected to raise interest rates another quarter percent.

With a quarter point rate hike all but certain, this Fed announcement will be a lot like an earnings release with the attention primarily focused on forward looking statements. Currently, the market is expecting rates to hold steady when the Fed meets in June and July. However, as of this morning, the market is signaling a nearly 40% probability of a quarter point cut in September. Therefore, not only will the post meeting press conference be important, but I also expect readings on the overall economy to potentially take on added significance in the coming months.

Speaking of the Fed, I think it’s worth acknowledging the job they have done in the past couple months with respect to the banking sector. It seems, at least for now, the damage from the failure of Silicon Valley Bank has largely been mitigated. Over the weekend and into early Monday morning, negotiations to take over First Republic Bank were taking place as JP Morgan agreed to take over the struggling bank. It appears so far that Jamie Dimon and company negotiated a favorable deal and established some boundaries protecting themselves from any further fallout. Shares of JP Morgan are up nearly 4% in premarket on the news.

For today, I want to see how the market digests the First Republic news. It seems as though for now, the worst of this could be behind us. I’m also going to be watching both the VIX and S&P 500. On Friday, the VIX made its lowest close of the year, well below 16. At the same time, we have the S&P 500 pushing up against that all important 4200 level that’s served as resistance. With a lot of economic news and Apple earnings this week, I’m curious if we can finally break through that 4200 level and head higher.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.