Fed's Rate Strategy, Jobs Report, and Tech Earnings to Dominate Week

Key Takeaway

• The Fed's policy announcement and Jerome Powell's commentary are highly anticipated for clues on rate cuts and economic health.
• Investors eye April jobs report, with an expected 250,000 jobs added, amid a resilient labor market.
• Corporate earnings, including from Amazon and Apple, alongside inflation concerns and Treasury yield movements, to influence market direction.

Fed's Policy Announcement in Focus

The Federal Reserve's upcoming policy announcement is highly anticipated by investors, with the central bank expected to maintain interest rates but provide crucial commentary on the economic outlook and inflation concerns. Fed Chair Jerome Powell's statements will be closely analyzed for any shift towards a more hawkish stance, especially after recent data showed three consecutive months of higher-than-expected inflation. David Alcaly from Lazard Asset Management highlighted the challenge of persistent inflation, suggesting it could delay or complicate expected rate cuts. The market's expectations for rate cuts in 2024 have significantly decreased, with the CME Group’s FedWatch tool indicating only a quarter percentage point cut, a sharp reduction from earlier predictions.

Labor Market and Corporate Earnings Watch

The release of the April nonfarm payrolls report is another key event, with economists predicting a decrease in job additions compared to March. A strong labor market has been a pillar of resilience against the backdrop of rising interest rates and inflation, but any signs of weakening could raise concerns among investors. Additionally, the earnings season continues with major reports from consumer-facing giants like Amazon and Apple. The performance of these companies, especially in the context of a challenging economic environment, will be crucial for market sentiment. Notably, Apple's underperformance this year and the impressive surge in Super Micro Computer's stock due to AI advancements will be in the spotlight.

Inflation and Interest Rate Debates Intensify

Recent inflation reports have exceeded expectations, challenging the Federal Reserve's narrative of transitory inflation and putting pressure on the central bank to possibly reconsider its interest rate strategy. Brian Nick from the Macro Institute and Matt Stucky from Northwestern Mutual Wealth Management Company discussed the increasing likelihood, albeit still low, of a rate hike. This shift in market expectations reflects growing concerns over inflation's persistence and its potential to necessitate further economic slowdown measures by the Fed.

Street Views

• David Alcaly, Lazard Asset Management (Neutral on the economy and interest rates):

  "Three straight months of higher-than-hoped inflation challenges the idea that this is seasonal volatility, as Powell has acknowledged. At best, it delays rate cuts. At worst, it implies the Fed needs to slow the economy."

• Brian Nick, Macro Institute (Cautiously Optimistic on Federal Reserve's stance):

  "If you’re just judging by the public speeches that we’ve heard since their March meeting, they’re likely to become incrementally more hawkish... You certainly are going to hear more caution about inflation from the chairman."

• Matt Stucky, Northwestern Mutual Wealth Management Company (Neutral on potential for rate hikes):

  "If you’re looking at the distribution, what’s priced in, it was essentially zero that the Fed was going to raise rates to start this year. Now it’s moving up towards 20%. So it’s not just a small percentage anymore... It’s still an unlikely event, a very unlikely event in my mind, but it’s not zero."