US equities surge in a big earnings week

The Dow Jones Index surged on Monday as investors braced for a Fed meeting during the week and earnings from some of the biggest companies to measure the impact of the stronger dollar and soaring inflation, while the Nasdaq slipped as technology firms fell.

The Dow Jones Industrial Average (.DJI) was up 103.16 points, or 0.32%, at 32,002.45, the S&P 500 (.SPX) was up 10.24 points, or 0.26%, at 3,971.87 and the Nasdaq Composite (.IXIC) was down 26.30 points, or 0.22%, at 11,807.82.

Apple Inc (AAPL.O), Amazon.com Inc (AMZN.O), Alphabet Inc (GOOGL.O), Microsoft Corp (MSFT.O) and Meta Platforms Inc (META.O), whose combined market capitalization of $8.9 trillion account for a quarter of the benchmark index’s weightage, are scheduled to post earnings this week.

Shares of big technology companies fell, with Microsoft slipping 0.4% after Wells Fargo cut its price target, citing risks from inflation, rising rates and a stronger dollar on earnings. Apple shares shed 0.1%, while chipmaker Nvidia Corp (NVDA.O) dropped 2.5%.

The US dollar, which hit near 20-year highs following an aggressive tightening cycle by the Fed, is seen as a headwind for US companies, especially those with vast global operations.

There are a lot of problems and a lot of headwinds including the dollar, but the good news is that expectations have been set much lower than they would have been a year ago. So in tech, analysts do not think inflation will hit that hard. What arouses most of the current concerns is the slow revenues in advertising related business models.

The Fed is widely expected to deliver another super-sized 75 basis-point rate hike at the end of its two-day monetary policy meeting on Wednesday, effectively ending pandemic-era support for the US economy.

Focus will also be on the press conference by Chair Jerome Powell for clues on policymakers’ thinking on future rate hikes amid concerns over an aggressive tightening tipping the economy into a recession.

Markets expect Jerome Powell to remind that 75bps hikes are unusually large and that the funds rate is close to the FOMC’s estimate of its longer-run level. This, and the signs of a material slowdown of the economy should tilt the balance for a 50 bps hike (in September), followed by another one in November and December.

Futures contracts tied to the US Fed’s policy rate suggested on Monday that benchmark interest rates will peak in January 2023, a month earlier than its previous projection last week.

Meanwhile, advance second-quarter GDP data on Thursday is likely to be negative after the US economy contracted in the first three months of the year. A traditional measure of a recession is two consecutive quarters of GDP contraction, though the group that is the official arbiter of US recessions looks at a broad range of indicators instead, including jobs and spending.