One of the dangers for investors of paying attention to financial media, whether it is TV channels such as CNBC or Fox Business, or internet sites that offer commentary and opinion (such as this one), is that it makes you prone to exaggerate the importance of everything that happens. Every writer, presenter, and editor knows that a piece with the words “crisis,” “crash,” or “boom” will do better than one that says that nothing much is going to happen, even though nothing much happening is always a far more likely scenario. In the world of financial media, every data release is “critical,” and every stock is “set to soar” or “about to collapse.”
That is why I am reluctant in some ways to say that this week is “critical” for stocks. I don’t want to employ the kind of hyperbole that distorts reality, but the more I look at the economic and earnings calendars for the week, the more convinced I am that that is the case.
The side of that may surprise some people, given that the calendar for this week doesn’t show any major data until the jobs report on Friday, and even then, unemployment has become a much less significant indicator than it once was. What makes this week so important, however, is not new data but the interpretation of existing data. What really matters right now is how central banks interpret that data.
If the actual numbers mattered, the Fed would have started to hike rates a lot sooner than they did, and nobody would have uttered the word “transient,” but that isn’t what happened. Instead, they looked at employment, price, and consumer spending data that screamed “inflation!” and told us that that was misleading, that price rises were driven primarily by supply chain disruptions and would quickly fade away. They delayed raising rates, and inflation is probably worse than it could have been as a result. The data at that time wasn't what mattered; it was the Fed’s interpretation of that data that drove policy. We are in the same place now in terms of whether to pause or even reverse the rising rate policy.
The deliberations of the Fed, the ECB and the Bank of England this week are, in many ways, more important than the numbers they will be deliberating.
Then there are earnings. It is a huge week for big tech, with Meta (META), Alphabet (GOOG, GOOGL), Apple (AAPL), and Amazon (AMZN) all reporting on either Wednesday or Thursday. This is always a significant part of earnings season, but especially now. These are the names that led the market lower last year but have bounced as optimism increased this month. They have all talked about a tough start to 2023 and, in most cases, have announced cutbacks and layoffs. If it turns out that pessimism was prompted by a bad Q4, and/or if it continues in terms of their outlook for the rest of the year, the midweek big tech could easily prompt a sharp reversal in the major indices.
This will be a week of risk. There is a risk that tone-deaf central banks will get behind the curve again, and that what is now seen as an abundance of caution by big tech companies will be revealed as necessary cutbacks prompted by terrible business conditions. Either of those could cause a major drop in stocks; on the other hand, this week could also add fuel to the rally. A more dovish time from central banks, or better than expected Q4 results from Meta, Alphabet, Apple, and Amazon with neutral to positive outlooks could send stocks higher.
It is, therefore, not hyperbole to say that this week is critical for stocks. It is just a statement of fact.
* In addition to contributing here, Martin Tillier works as Head of Research at the crypto platform SmartFI.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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