Apple and Microsoft report earnings next week. Can a Fed rate hike exceed them?

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Big Tech earnings are next week. But so is the Federal Reserve’s interest rate announcement.

Krisztian Bocsi/Bloomberg

Big Tech’s earnings season will kick into fifth gear next week, with giants like

Apple
,

Microsoft
,

Amazon.co.uk
,

and

Alphabet

reporting second quarter revenue during the week.

But the benefits of technology may well be overshadowed by another major event for the stock market: the Federal Reserve’s upcoming interest rate decision.

“A look at sentiment indicators suggests Americans are watching the Fed’s rate decision more closely than upcoming tech earnings, and that makes sense,” wrote American Institute economist Peter C. Earle. for Economic Research. “Inflation is hitting Main Street very hard right now.”

Rising interest rates have been on investors’ minds since earlier this year, when the Fed launched an aggressive money-tightening plan in the face of rising inflation. June inflation data came in hotter than expected, prompting analysts to predict the Fed could raise the fed funds rate by at least 0.75% and up to 1% by the end of its March meeting. July next Wednesday. A 1% increase would be the biggest rise in interest rates since the 1980s and heighten fears that the economy could plunge into a recession.

“If they come up with a 75 basis point hike as expected, but soften language on future hikes, that would be a huge boost for markets next week,” said Luke Tilley, chief economist at Wilmington. Trust.

For some experts, however, the Fed’s decision could actually override tech earnings.

“FAANG’s earnings with Microsoft will be front and center for investors to provide better direction/clarity on the overall demand environment in this fragile macro, with the tech sector already slowing hiring across the board,” he said. said Wedbush analyst Daniel Ives.

The reports will be an “important barometer” to better gauge the health of consumer demand in a slowing macroeconomic environment, Ives added.

Moreover, the Fed’s interest rate hike already appears to be priced in by the market, said Nancy Tengler, managing director and chief investment officer of Laffer Tengler Investments. Stock and bond markets have already reacted to the Fed’s warning rhetoric in recent months, repricing accordingly, she added.

That leaves little room for the Fed to surprise the stock market on Wednesday, said Jan Szilagyi, CEO of research firm Toggle AI. Tech companies, in turn, may still hold “quite a few negative surprises,” mostly because it takes a while before analysts lower their expectations, he said.

“The focus will be more on the performance of individual stocks,” Szilagyi added.

Ives thinks the two most important technical impressions next week will be Microsoft (ticker:

MSFT

) and Apple (

AAPL

), as companies have weathered the economic storm relatively well so far, compared to the rest of the industry.

Tengler agreed, saying this is the type of market where investors should focus on industry leaders with strong free cash flow and growing dividends. She and her company, Laffer Tengler, own both Apple and Microsoft, seeing the latter as a good bet on cloud and long-term cybersecurity exposure.

Granted, Apple and Microsoft are “crucial to the earnings picture,” Tilley said, but if they live up to expectations and offer cautious guidance, they’ll join a broad camp of multinationals who have already expressed similar sentiment, a- he added.

Either way, it’s shaping up to be a whirlwind week. Investors, get ready.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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