Important preview of the week: Is the rebound caused by the Ethereum merger stronger than the weak macro environment?

Original: https://twitter.com/dunleavy89/status/1551258338989641731

By Dunleavy

This week is a big one for companies reporting earnings (FANGs earnings).

This week is an important week for the macro economy (Fed rate decision).

At 2 a.m. Beijing time on July 28, the Federal Reserve will announce its interest rate decision, and then Fed Chairman Jerome Powell will hold a press conference half an hour after the interest rate announcement.

Apple, Amazon, Meta, Exxon, Microsoft, Boeing and Pfizer are all set to report heavily.

To date, 21% of companies in the S&P 500 have reported earnings. Not great so far, but not bad either. The trend of negative earnings beating expectations is on the rise. Pos surprises tend to be lower.

When the dollar rises (and it has a lot of it), companies tend to miss out on earnings, especially tech companies, which average 60% of their revenue overseas, compared with 30% for the rest of the S&P.

Not to mention that analysts are terrible at forecasting earnings in downturns.

If Big Tech falls short and guides shares lower, we could finally see share prices drop to reflect the forward price-to-earnings ratios investors have been waiting for.

Earnings expectations remain at historically high levels for any period, regardless of things like wars, high inflation and pandemics.

The Fed is expected to raise interest rates by 75 or 100 basis points on Wednesday. They have an excuse to raise 100 basis points.

According to related surveys, 98 out of 102 analysts expect the Fed to raise interest rates by 75 basis points to 2.25%-2.50%. The remaining four said they expected a rate hike of 100 basis points. The median forecasts in the latest survey put the chance of a U.S. recession in the next year at 40% and within two years at 50%, up from 25% and 40% in the June survey.

Inflation affects everyone, and if the Fed causes a recession, unemployment goes from 3% to 6%, which hurts people a lot less.

But they could still end up raising rates by 75 basis points. Recession signals are starting to flash red (yield curve, consumer sentiment) and housing (the largest component of inflation) is experiencing massive delays in loan repayments with mortgage rates around 6%.

Eth's correlation with stocks is flipping.

A bad reaction to the Fed and stocks showing this week will be a test of consolidation and macro if we get earnings well below expectations.