Thinking of fighting the Fed?

This week promises to be eventful for market players, with major corporations revealing their Q4 2022 earnings as well as key financial data being released (Dallas FED Manufacturing Index, Chicago PMI, ISM Manufacturing, employment cost, CB consumer confidence, ADP employment change, etc.).

This is expected to provide conflicting signals about the economy.

Additionally, U.S. central bankers plan to hike interest rates by 25 basis points on Wednesday.

We anticipate that the FED's interest rate hike will have a negative impact on the economy, leading to possible increased bankruptcies among small businesses throughout 2023, due to high debt servicing costs and persistent inflation.

This will also put further strain on the labor market, revealing deeper economic issues in the near future.

This perspective aligns with the December 2022 Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, which predict a median unemployment rate of 4.6% in 2023.

It's an actual fact that every 1% rise in unemployment has correlated with a recession since 1949 (December unemployment was at 3.5%).

Hence, we argue that the FED's actions indicate a potential recession in Q2 2023.

The market sentiment is becoming overly optimistic and careless, ignoring the possibility of a significant economic decline.

We believe this sets the stage for a major market adjustment, and remain bearish on SPX beyond the short term.

Some of the companies reporting their earnings this week:

Apple

Alphabet

Amazon

Exxon Mobil Corp.

Pfizer

McDonald's

Caterpillar

Phillips 66

Spotify

Meta Platforms

Canon

J&J Snacks Foods

NXP Semiconductors

Ryanair Holdings

SoFi Technologies

Whirpool Corp.

Eyes peeled out there on the charts. Big week in store!

-The AlgoBuddy Team