Tech stock earnings or Fed speak?

Which will shift the market the most this week?

Or will both cause a directional explosion?

Retail traders face a flurry of questions this week that will only be answered as events unfold. Simpler’s traders will be in the mix throughout the week, sharing how they plan to play the next market move.

Traders must sift through data, earnings, Fed news

Along with fourth quarter earnings results from more than 300 corporations, key economic data is set for release this week.

All this is meshed with the impending Federal Open Market Committee (FOMC) meeting tomorrow and Wednesday the team at Simpler Trading is holding onto a more cautious stance when putting their money to work. The central bank is expected to once again raise the federal funds rate, which affects interest rates across the consumer spectrum.

“Last week’s rally pushed stocks higher amid hopes that inflation is moderating while the economy is not deteriorating as quickly as had been feared,” said Mary Ellen McGonagle, Senior Managing Director of Equities at Simpler Trading.

That positive sentiment has already been put to the test as traders await the flurry of earnings reports, economic data, and the central bank announcement expected on Wednesday.

High-profile earnings reports in the technology sector are slated for this week.

Notable earnings reports this week include Advanced Micro Devices, Inc. (AMD) and Snap, Inc. (SNAP) after the market closes on Tuesday; Meta Platforms, Inc. (META) after the close on Wednesday; and Amazon.com, Inc. (AMZN), Apple, Inc. (AAPL), and Alphabet, Inc. (GOOGL) will report after the closing bell on Thursday.

Nested amidst earnings and interest rates are the Employment Cost Index (ECI), which is a broad measure of wages and benefits, tomorrow morning and the December Job Openings and Labor Turnover Survey (JOLTS) on Wednesday. Both metrics are closely watched by the Federal Reserve (Fed), according to Mary Ellen. She noted that the Fed is on a path to reduce employment numbers while seeing downward pressure on wages.

“Even more impactful will be the Federal Reserve’s announcement of their latest rate increase on Wednesday,” Mary Ellen said.

Fed news quickly impacts stock market, prices

Mary Ellen pointed out that investors will be closely watching the expected .25 percent increase in interest rates along with Fed Chairman Jerome Powell’s comments at his press conference Wednesday afternoon. Fed leaders last week indicated interest in keeping the interest rate hike below the previously expected .50 percent increase.

“Key points will be how much higher the central bank intends to raise rates and what officials need to see before pausing their rate hike campaign,” Mary Ellen said. “Overall, the broadening out of participation in this bear market rally coupled with promising economic data has us constructive on the near-term prospects for the markets.”

The stock market revealed on Monday how susceptible it is to volatility, starting the week to the downside.

In the market today, the Dow dropped to 33,717.09 points, falling .77% (losing 260.99 points on the day). The Nasdaq tumbled to 11,393.81 points for a 1.96% loss while the S&P 500 buckled by 1.30% to 4,017.77 points.

Traders, stock market face ‘judgment’ week

For Sam Shames, Vice President of Options at Simpler Trading, the stock market story remains the same this week with bulls and bears fighting for position.

The difference is this week feels like “judgment week” with all that is happening, particularly a barrage of mega cap technology stock earnings reports and the Fed interest rate decision followed by Powell comments.

“While I personally don’t believe that earnings matter in this environment as they are backward looking and markets are forward looking, Powell certainly matters,” Sam said “If he blesses the recent rally, which is the higher probability only based on the technicals, we will see a continued large move higher likely lasting until the next Fed meeting.”

But bullish traders would be wise to not bet the farm on Powell.

“If he gives the thumbs down to the bulls, we will likely see a retest of 3,950 S&P 500 (SPX) support and will have to reassess from there,” Sam said.

Controlling risk key to trading in uncertain market

Much is riding on outside influences that will affect the stock market this week.

“Bulls have made substantial progress across many parts of the market,” Sam said. “This is the most aligned the bull setup has been in over a year. This will be an excellent test of technicals versus near-term obvious walls of worry. Usually, technicals win.”

As the news events play out this week, Sam always returns to a mainstay for retail traders.

“The main thing this week is to have a plan and control your risk,” Sam said. “While the markets have never looked better to have a legitimate bottom in play, do not forget the risk this week and next and do not get complacent even if markets break out.”

Sam isn’t planning on any big bets this week.

“My plan will be to flatten out by Tuesday and be ready for the expected volatility introduced by the Fed rate decision plus technology stock earnings,” Sam said. “ The charts imply there is nothing to worry about and that markets want to go higher. However, if anything can drop kick markets it’s not earnings, it’s Powell.”