Economists predict the central bank will raise rates by another 75 basis points as it seeks to combat surging inflation. While higher rates have been the primary headwind to tech stocks this year, investors say the policy path is now priced in, especially since consumer inflation expectations are falling, suggesting the Fed may be able to be less hawkish.
Because the Fed is a known quantity, Janasiewicz added, earnings will be critical for the market. He is focused on how margins are holding up amid inflation, and on how much consensus estimates may need to fall. Of course, the macroeconomic backdrop remains a key factor behind earnings and corporate outlooks. Matt Calkins, the chief executive officer of enterprise software company Appian Corp, is so concerned about inflation that he wants the Fed to be extremely aggressive, raising rates by 100 or 125 basis points.
However, if consensus estimates continue moving lower, as they are expected to, that multiple might be deceptively low. Last week, Bank of America Corp. warned that the technology sector hasn’t priced in a full recession, and that it may have further room to fall. The cross-currents between the macro backdrop and how companies are faring in it reinforces how this earnings season could be pivotal for the market’s prospects.