Apple and Microsoft Report Earnings Next Week. Can a Fed Rate Hike Top Them?

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Big Tech earnings season will shift into fifth gear next week, with giants like

Apple
,

Microsoft
,

Amazon.com
,
and

Alphabet

reporting second-quarter earnings over the course of the week.

But tech earnings may well be eclipsed by another major event for the stock market: the Federal Reserve’s next move on interest rates.

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

Rising interest rates have been a main focus for investors since early this year, when the Fed embarked on an aggressive plan to tighten monetary supply in the face of rising inflation. June’s inflation data came in hotter than expected, prompting analysts to predict that the Fed could raise the federal-funds rate by at least 0.75%, and as much as 1% at the end of its July meeting next Wednesday. A 1% increase would be the biggest interest rate hike since the 1980s, and would heighten concerns that the economy could dip into a recession.

“If they come in with a 75-basis-point hike as we expect, but soften the language about future hikes it would be a huge boost to markets next week,” said Luke Tilley, chief economist at Wilmington Trust.

For some experts, however, the Fed’s decision may actually take a back seat to tech earnings.

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

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

Moreover, the Fed’s interest rate hike already seems to be priced in by the market, said Nancy Tengler, chief executive and chief investment officer of Laffer Tengler Investments. The stock and bond market already have responded to the Fed’s cautionary rhetoric over the past few 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, can still turn in “quite a few negative surprises,” mostly because it takes a while before analysts lower their expectations, he said.

“The focus will be more on individual stock performance,” Szilagyi added.

Ives believes the two most important tech prints next week will be Microsoft (ticker:

MSFT

) and Apple (

AAPL

), given that the companies have weathered the economic storm relatively well so far, compared with the rest of the sector.

Tengler agreed, saying this is the kind of market where investors should focus on industry leaders with strong free cash flow and dividend growers. She and her firm, Laffer Tengler, own both Apple and Microsoft, seeing the latter as a good way to bet on cloud and cybersecurity exposure in the long run.

To be sure, Apple and Microsoft are “crucial to the earnings picture,” Tilley said, but if they meet expectations and offer cautious guidance they join a large camp of multinationals that have already expressed similar sentiment, he added.

Whatever the case, it’s shaping up to a whirlwind week. Investors, brace yourselves.

Write to Sabrina Escobar at [email protected]