The Federal Reserve increased interest rates last week and market participants are closely watching to see if equities can continue the upswing experienced recently. An impressive rally in technology and growth stocks meant major indices such as the S&P 500, Nasdaq, and Dow Jones gained 6.2%, 8.2%, and 5.5% respectively in the week ended on March 18, 2022. It was the best week for stock market investors since 2020.
Now, the U.S. stock futures were holding steady in overnight trading on Sunday as the S&P 500 futures were up by a marginal 0.04% while the Dow Futures gained 15 points.
Investors expect the stock market to stabilize
After a better-than-expected performance in the last week, is it possible for the stock market to sustain momentum going forward? According to historical data, April has been one of the best months for equities which should cheer investors.
The S&P 500 has already recouped around half of its losses in the last few trading sessions even as the Fed signaled multiple interest rate hikes are on the cards. While major indices might be rangebound in the near term, the upcoming earnings season will be the next key driver of stock prices.
Despite a volatile macro-environment, earnings forecasts for companies have increased since the start of 2022. The ongoing war between Russia and Ukraine will continue to weigh heavily on markets as oil prices are trading close to all-time highs. While the officials of the two countries continue to meet for peace talks, they have failed to progress towards a consensus.
Finally, the increase in the number of COVID-19 cases in Europe, Hong Kong, and China is bound to exacerbate supply chain disruptions driving inflation numbers higher in the near term.
Will gold prices move higher?
Generally, gold prices have an inverse relationship with the stock market. Viewed as an alternate asset class and a store of value, gold spot prices rose to record highs in September 2020 as investors were worried about the impact of the ongoing pandemic. However, prices have fallen by more than 15% in the last 18 months and experienced their biggest weekly drop in nearly four months last week.
Bullion was down close to 3% in the past five days on the back of higher interest rates and optimism over peace talks that improved market sentiment and lowered demand for safe-haven assets. As the central bank is on track to raise interest rates by five more times in 2022, it will raise the opportunity cost for holding non-interest paying assets such as gold.
Alternatively, Standard Chartered analyst Suki Cooper explained the hawkish outlook of the Federal Reserve should not derail the positive sentiment surrounding bullion as geopolitical risks have raised inflation concerns driving long-term interest for gold.
Copper stated, “While the physical market has come under pressure, growth in investor interest has more than offset this weakness for now, suggesting that volatile price action is here to stay.”
Nike and Adobe among S&P 500 giants to report earnings this week
There are several companies part of the S&P 500 index which will report earnings this week. Retail giant Nike (NYSE: NKE) will report its fiscal Q3 of 2022 results, ended February, on Monday. Analysts expect Nike to increase sales by 2.4% year over year to $10.6 billion while adjusted earnings might fall by 21% to $0.71 per share in Q3.
Valued at a market cap of $214 billion, Adobe (NASDAQ: ADBE) will is forecast to increase sales by 8.7% year over year to $3.9 billion in fiscal Q1 of 2022 ended in February. Comparatively, its adjusted earnings might rise by 6.4% to $3.34 per share in Q1.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
