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Top 5 things to watch in markets in the week ahead

Published 10/22/2023, 06:05 AM
© Reuters

Investing.com -- The risk-off mood dominating markets looks likely to continue in the coming week, while four out of seven megacap companies are due to report earnings. U.S. data will give markets another update on the strength of the economy. Oil prices look set to remain choppy and the European Central Bank will announce its latest rate decision. Here’s what you need to know to start your week.

  1. Risk-off mood

A risk-off mood is dominating markets with investors worried about the prospect of more interest rate hikes and the Israel-Hamas conflict spreading. A weaker-than-expected earnings report for Tesla (NASDAQ:TSLA) last week also darkened the mood.

Wall Street’s most closely watched measure of investor nervousness, the CBOE Volatility Index, closed Friday at its highest in nearly seven months. For the week the Dow was down 1.6%, the S&P 500 fell 2.4% and the Nasdaq slid 3.2%.

The benchmark 10-year Treasury yield eased on Friday, a day after crossing 5% for the first time since July 2007 in the wake of comments by Fed Chair Jerome Powell (see below).

That has left investors piling into other traditional safe-haven assets such as the dollar and gold, as well as short-term Treasuries or money-market funds, which are providing more attractive returns since interest rates began rising early last year.

  1. Megacap earnings

Third quarter earnings season is well underway and results from four megacap companies are due this week, in what will be a key test for a group of stocks whose gains have propelled the S&P 500 higher this year.

Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) are due to report on Tuesday, Meta Platforms (NASDAQ:META) is to report on Wednesday and Amazon (NASDAQ:AMZN) reports on Thursday.

Those stocks, together with Apple (NASDAQ:AAPL), Nvidia (NASDAQ:NVDA) and Tesla have accounted for the bulk of the S&P 500's 10% year-to-date gain, so any disappointing results could result in widespread fallout.

Other big names reporting in the coming week include Coca-Cola (NYSE:KO), General Motors (NYSE:GM), Merck (NYSE:MRK) and United Parcel Service (NYSE:UPS). Investors are banking on an overall recovery in U.S. profits after a tepid first half.

  1. U.S. data

Market watchers will get a fresh update on the strength of the U.S. economy this week from data including third-quarter growth and the Fed’s favored measure of inflation, the core personal consumer expenditures price index.

Economists are expecting third quarter gross domestic product to come in at an annualized rate of 4.1%, boosted by strong consumer spending.

The core personal consumption expenditures price index, which excludes volatile food and fuel costs, is forecast to increase 3.7% on a year-over-year basis.

Fed Chair Jerome Powell on Thursday said the stronger-than-expected U.S. economy might warrant tighter policy though rising market interest rates could make action by the central bank itself less necessary.

  1. Oil prices

Oil prices settled lower on Friday after the Islamist group Hamas released two U.S. hostages from Gaza, leading to hopes the Israeli-Palestinian crisis could de-escalate without engulfing the rest of the Middle East region and disrupting oil supplies.

Brent crude futures fell 22 cents, or 0.2%, to settle at $92.16 a barrel.

U.S. crude futures for November delivery, which expired after settlement on Friday, fell 62 cents, or 0.7%, to $88.75 a barrel. The more-active December crude contract closed 29 cents lower at $88.08 a barrel.

For the week, both front-month contracts rose over 1%, a second straight weekly jump.

"The Middle East remains a big focus of the market because of fears of a region-wide conflict that would likely involve a disruption of oil supplies," John Kilduff, a partner at New York-based Again Capital told Reuters.

  1. ECB likely to hold

The ECB is holding its latest policy meeting on meeting on Thursday, with the broad consensus being for interest rates to remain on hold.

After the ECB hiked its deposit rate at each of its last 10 meetings to a current record high, policymakers have indicated it is time to pause as they assess the impact of monetary tightening so far.

Market participants will be on the lookout for any indications of a possible final rate hike for this year in December.

Ahead of Thursday’s meeting, the Eurozone is to release what will be closely watched October PMI data on Tuesday. Recent economic data has raised concerns over the outlook for the bloc’s economy amid weakening consumer spending in the face of still high inflation.

--Reuters contributed to this report

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