Rattled investors are bracing for earnings from the market’s biggest tech companies, a Federal Reserve policy meeting and closely watched employment data in a week that could determine the near-term trajectory of U.S. stocks following a bout of severe turbulence.
Though the S&P 500 is still only about 5% below its all-time high and is up nearly 14% this year, some investors worry that Wall Street may have become too optimistic about earnings growth, leaving stocks vulnerable if companies are unable to meet expectations in coming months. Recent weeks have shown signs of a rotation out of the high-flying tech leaders and into market sectors that have languished for much of the year, including small caps and value stocks such as financials.
“The market is going to take direction based on the fact that these stocks have pulled back,” he said. “My thinking is that tech came down so hard, even if you get a bounce from these names due to earnings you will have people itching to sell into any gains.” Markets are currently pricing in a near-certainty that the Fed will begin cutting interest rates at its September meeting, and expect 66 basis points in total cuts by the end of the year, according to CME’s FedWatch Tool.
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