S&P 500 rises at the start of big week but bearish technicals cast shadow

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• S&P 500 added 0.69% last week but closed well off intra-week high.
• Last week set up a bearish evening star doji pattern on the S&P 500 daily chart.
• Nearly one-third of the S&P 500 reports earnings this week.
• FOMC meeting on Wednesday will end with decision on fed funds rate.
• Microsoft, Meta Platforms, Alphabet and Visa release quarterly results.

The S&P 500 should experience higher-than-normal volatility this week as a number of newsworthy events converge to buffet the index in both directions. The index rose 0.69% last week as earnings season got underway, but the daily chart ended the week with an evening star doji pattern that typically forecasts a bearish reversal.

All eyes are on the Federal Reserve this week as July’s Federal Open Market Committee (FOMC) meeting takes place on Tuesday and Wednesday. Following Wednesday’s meeting, the FOMC will announce its decision on whether to raise the fed funds rate. The market wholeheartedly expects a 25-basis-point hike.

Throughout the week, the stock market’s largest companies will release their second-quarter results. Domino’s Pizza (DPZ) comes on Monday, followed by Microsoft (MSFT) and Visa (V) on Tuesday. Then Meta Platforms (META) and Coca-Cola (KO) release on Wednesday before Mastercard (MA) and McDonald’s (MCD) announce on Thursday. On Friday, Exxon Mobil (XOM) and Procter & Gamble (PG) finish off the week.

At the time of writing in Monday’s first hour of trading, S&P 500 futures are advancing 0.42%, while NASDAQ 100 futures rise 0.17%. Dow Jones futures are also in the green gaining 0.50%.

S&P 500 News: Earnings to lead the week’s headlines

Almost one-third of the S&P 500 component companies – about 150 or more – will release earnings this week. Positive results or beats from the largest companies should push the index higher of course, while major misses could lead to a sea change in sentiment that ushers it lower.

Monday begins with Domino’s Pizza, one of the best-performing stocks of the last 15 years. Wall Street expects the pizza chain to earn $3.07 in GAAP earnings per share (EPS) on $1.07 billion.

The biggest company to report this week is Microsoft on Tuesday. There will be lots of high fives all around if the software king can beat Wall Street consensus of $2.55 in GAAP EPS on $55.5 billion in sales.

Alphabet (GOOGL) reports after the market closes on Tuesday as well. Analyst consensus is $1.34 in GAAP EPS on $72.75 billion in revenue.

Major telecommunications “failsons” Verizon (VZ) and AT&T (T) report earnings on Tuesday and Wednesday, respectively. Verizon is expected to report $1.15 in GAAP EPS on $33.32 billion in sales, while AT&T’s consensus is at $0.61 in GAAP EPS on $29.95 billion in sales. Both stocks have lost plenty of ground year to date despite being beloved by dividend investors.

Meta Platforms — the owner of Facebook, Instagram and now Threads — reports late Wednesday as well. The market will watch to see if the social media leader has earned its 136% return year to date. Analyst consensus averages $2.91 per share in GAAP EPS on sales of $31.03 billion.

Exxon Mobil has had a more challenging quarter than initially expected, with global oil prices somewhat moderating. Wall Street is counting on $2.03 in GAAP EPS on revenue of $90.32 billion.

Market expects Fed to hike 25 bps on Wednesday

Fed Chair Jerome Powell will follow up the central bank’s decision on interest rates this Wednesday with further color on the state of the US economy in his post-meeting speech. Since the market is nearly certain in its belief that the Fed will raise the fed funds rate on Wednesday, the S&P 500 will likely move more based on the Chair’s guidance for upcoming meetings.

After June’s FOMC meeting, Powell predicted that the central bank would raise rates at two more meetings though it kept rates still in June. For the July meeting, the CME FedWatch Tool gives a 99.8% probability of a 25 bps rate hike. This would push the fed funds rate up to the 5.25% to 5.5% range.

The rate hike is largely priced in at the moment, but more hawkish rhetoric from the Fed Chair could lead to a sell-off among bank stocks. Inflation data has been quite impressive over the past few months, with the July core CPI inflation rate dropping to 4.8%. The US labor market has begun to loosen more recently, but the central bank appears unlikely to begin cutting interest rates until core CPI rate nears its 2% mandate.