Investors worry the Fed will rise again

But the biggest worry in financial markets lies in what earnings season may reveal to investors.

Volatile markets fear more aggressive gains from the Federal Reserve, but earnings season can tell investors whether the profit outlook points to the possibility of a recession.

Shares fell on Thursday (14). U.S. Treasury yields rose as traders bet the Federal Reserve could raise interest rates by 1 percent later this month.

But as JPMorgan and others begin to report their earnings season, Stovall said the market is actually more concerned about the company’s cautious comments and the potential for earnings declines.

Earnings season is when a large number of public companies release quarterly earnings, usually two to three weeks after the quarter ends.

Shares of JPMorgan fell about 3.5% on Thursday morning after reporting a surprise 28% drop in earnings.

“Right now, I think the market is, yes, worried about rates, but I think it’s more worried about earnings. What we do know is that analysts haven’t done anything to lower their forecasts,” Stovall said.

Read more: Peak U.S. inflation is yet to come, and why

The Fed’s Impact on Crypto

The release of high U.S. inflation data has sparked another market crash as the prices of major crypto assets, Bitcoin and other cryptocurrencies become more correlated with traditional market shares. If it increases again, especially by a percentage point, Bitcoin is likely to return to the $17,000 region, or even worse.

Read more: Highest U.S. inflation and rising interest rates in 40 years could lead to another Bitcoin crash

Preparing for a more aggressive Fed

The last time the Fed raised the federal funds rate by a percentage point was in the 1980s, when former Fed Chairman Paul Volcke raised rates by 20% in the fight against inflation. At the time, the central bank did not need to publicly clarify its funds rate decision.

The Fed rose 0.75% last month, its biggest gain since 1994, and the market had been bracing for a similar rise until Wednesday’s June inflation report boosted forecasts for stocks even more aggressively.

The benchmark rate is now in the 1.5%-1.75% range, the highest since March 2020, before the Covid-19 pandemic began.

The worry is that the central bank’s aggressive moves could tip the economy into recession sooner than expected. On Wednesday, expectations for a total percentage point increase approached 70%.

Those expectations were dampened on Thursday by comments from two Fed officials. Fed Governor Christopher Waller said he supported a 75 basis point (0.75%) gain, and St. Louis Fed President Bullard also said he supported that level.

If the Fed decides to raise the federal funds target rate by 1 percentage point, strategists point out that there is no clear comparison between the 1980s and now. The market also may not be as surprised as it used to be.

“I don’t know if it’s going to be a huge shock. We’ve been through a month when the Fed committed about 50 basis points. They got the CPI report and they were up 75. It’s happening again.

The Fed got a terrible inflation report, even worse than the last one, so instead of raising the expected 75 points, they’re raising 100 points. I don’t know if anyone would be shocked.

Chris Rupkey, chief economist at FWDBONDS LLC.

Paul Hickey, co-founder of Bespoke, said the central bank has made it clear that it will stick to its interest rate path until the inflation path changes, but so far it has not:

“I think the company will be a good guide for understanding market conditions. The current situation is not necessarily that bad. It’s a matter of preparing for the turbulence to come.”

Stovall said he expects more losses and more revisions, and is already reporting lower earnings estimates for the second quarter. During the period, analysts had expected a profit margin of 13.9% as of June 30, but those expectations have been reduced to 13.1%.

These corrections could bring more volatility to the stock market.

Also read:

Where to Invest Bitcoin Nears $21,000 While U.S. Inflation Is High, Ethereum Gains 12%

Source of information: Compiled from COINTIMES by 0x information.The copyright belongs to the author Ana Bondance and may not be reproduced without permission

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