Earnings, ECB, driving action on Wall Street: what’s next?

A couple of high-profile earnings reports and the ECB’s decision to raise interest rates in the euro zone got some action on Wall Street last week.

Earlier in the week, traders and investors were pleasantly surprised by an earnings report from Netflix that beat analyst estimates. Additionally, the video-streaming giant provided an upbeat forecast for third-quarter subscriber growth on the back of a strong start for Stranger Things season four.

That sparked a two-day rally in large-cap tech stocks on the tech-heavy NASDAQ.

Then it was strong results from Goldman Sachs and Citigroup that illuminated the financial sector, which makes up a large portion of the S&P 500 index.

And there was the ECB’s decision to hike interest rates by 50 basis points later in the week, double the 0.25 basis point markets had been expecting, giving bond traders a sense of confidence that the euro-zone’s central bank is serious about fighting inflation . Hence the strong rally in bond markets that saw 10-year Treasury yields fall below 2.80%.

Lower bond yields turned on the risk button in stock markets, fueling the rally in tech stocks that spread to other risky sectors like cryptocurrencies.

Still, there was a spoiler at the end of the week, a big profit and revenue loss from Snap Inc. that crashed the tech sector on Friday.

“This week, the stock market chained three good days together, creating the best three-day rally for US stocks in some time,” Jas Thandi, Aon Partner of Portfolio Strategy, said in an email to the International Business Times. “But the market looked set to close lower on Friday night as the reality of a risky earnings season for market participants continued to creep in.”

What’s next? Thandi said he sees “markets continue to oscillate between fears of a recession, earnings being revised down and a persistently inflationary environment.”

Thandi added that “what the markets are worried about will depend on this week’s news”.

Kunal Sawhney, CEO of Kalkine Group, expects earnings reports to drive Wall Street momentum in the near future.

“Earnings season is also here as mega-cap companies report quarterly earnings and impact near-term trader sentiment,” Sawhney told IBT in an email.

Mega-cup companies derive much of their revenue from overseas markets, which could be hurt by the strong dollar.

Last week, IBM reported a $3.5 billion drop in revenue due to the strong dollar. Therefore, there could be some surprises in the mega caps reports next week and take the market on another wild ride.

But another factor affecting trader sentiment next week is monetary policy, with the Federal Open Market Operations Committee (FOMC) announcing its policy decision on Wednesday. Most market analysts expect a 75 basis point rate hike, but there could be surprises here too. As with a 100 basis point hike, the nation’s central banks may want to prove to Wall Street that they are vigilant in fighting inflation.

Markets have already priced in the 75 basis point, so it won’t be an event if the Fed goes through with this hike. But it will be a big event if the 100 basis point hike continues, with unpredictable consequences for the debt and equity markets.

https://www.ibtimes.com.au/earnings-ecb-drive-action-wall-street-whats-next-1834073?utm_source=Public&utm_medium=Feed&utm_campaign=Distribution Earnings, ECB, driving action on Wall Street: what’s next?

Fry Electronics Team

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