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Markets Slide Ahead of Fed and Busy Earnings Week

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

This week is expected to be an extremely eventful one with three major central banks meetings, a slew of economic data and large number of companies reporting. The Federal Reserve, European Central Bank and Bank of England are set to raise interest rates to their highest level since the global financial crisis, but the magnitude and the tone of their forward guidance is likely to differ.

The highlight of the week would be the FOMC meeting. Despite last year’s aggressive policy tightening, Fed officials are not done hiking yet and have signalled that two smaller rate increases are likely – one in February and a final one in March, as recessionary forces rise, and inflation slows.

Investors should brace for a critical week ahead as the Fed is anticipated to raise its federal funds rate by 25 basis point, which would be the second in a raw reduction of the hike size, bringing the range to 4.5% to 4.75%.

Market analysts predict a 98% chance of 25 basis point hike according to the CME’s FedWatch tool, making this an opportunity for shrewd investors to reassess their portfolios and make informed decisions. Fed’s Chair Powell press conference will be closely watched too as it may provide clues how much higher rates might go.

Q4 earnings season kicks off in earnest and will provide further insights into the economic conditions. More than 100 of the S&P 500 companies will report throughout the week providing information on how earnings and margins are faring in the current environment.

Big tech companies such as Apple, Alphabet, and Amazon will release earnings on Thursday, which could influence the markets as a whole and their forward guidance would be as closely watched as the Fed press conference on Wednesday. Investors are wary that tech companies struggle to grow while cutting costs ahead of a recession.

Meanwhile, the effects of China reversing COVID-19 restrictions and more moderate energy prices continue to buoy optimism, even amidst warnings from central bankers that higher inflation is still a concern. With this in mind, it is little wonder that this week promises to be one of the most action-packed in a while.

After a slew of layoffs by large-cap tech and financial firms in January, investors are keenly awaiting the Labor Department’s January nonfarm payrolls data release on Friday. Economists are expecting a slight decline in employment and average hourly earnings, and a modest rise in unemployment.

Overall, the US stock market’s impressive performance in 2023 is poised to lose steam as the Federal Reserve prepares to implement its eighth consecutive rate hike during its policy meeting this week and earnings could prove to be worse than feared.

Source: Tradingview

January saw promising gains, with the S&P 500 surging more than 5% in the first month of the year, but these can be attributed to the well-known seasonal «January effect» and short-term market recovery from a challenging end of 2022.

The technical picture it isn’t rosier either, with the leading Relative Strength Index declining from its bear market resistance and the S&P 500 index reversing the rally around a key static and dynamic resistance level of 4,100.

The daily stochastic indicator set up to track the short-term swings generated a new sell signal on Monday, suggesting that the stock market is vulnerable to a decline this week. Given the confluence of indicators’ signals pointing to a likely weak market dynamics, we see levels of 3,890 as easily achievable in the short-term, while a decline to 3,770 in the coming month is firmly on the cards.

Savvy investors looking to take advantage of cost-effective with low-management fees ETPs offering magnified exposure to a variety of U.S. indices may consider our 3x Long US 500 and -3x Short US 500 ETPs to diversify/hedge their portfolios or take advantage of the short swings in the market.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Violeta Todorova

Senior Research

Violeta se unió a Leverage Shares en septiembre de 2022. Ella gestiona la realización de análisis técnicos, investigación macroeconómica y de acciones, y ofrece información valiosa que ayuda a la definición de estrategias de inversión para los clientes.

Antes de unirse a LS, Violeta trabajó en varias empresas de inversión de alto perfil en Australia, como Tollhurst y Morgans Financial, donde pasó los últimos 12 años de su carrera.

Violeta es una técnica de mercado certificada de la Asociación Australiana de Analistas Técnicos y tiene un Diploma de Postgrado en Finanzas e Inversiones Aplicadas de Kaplan Professional (FINSIA), Australia, donde fue profesora durante varios años.

Julian Manoilov

Marketing Lead
Julián se unió a Leverage Shares en 2018 como parte de la principal expansión de la compañía en Europa del Este. Él es responsable de diseñar estrategias de marketing y promover el conocimiento de la marca.

Oktay Kavrak

Head of Communications and Strategy

Oktay se incorporó en Laverage Shares a fines de 2019. Él es responsable de impulsar el crecimiento del negocio al mantener relaciones clave y desarrollar la actividad de ventas en los mercados de habla inglesa.

Él vino de UniCredit, donde fue gerente de relaciones corporativas para empresas multinacionales. Su experiencia previa es en finanzas corporativas y administración de fondos en empresas como IBM Bulgaria y DeGiro / FundShare.

Oktay tiene una licenciatura en Finanzas y Contabilidad y un certificado de posgrado en formación empresarial de Babson College. También es titular de una certificado CFA (Chartered Financial Analyst).

Sandeep Rao

Investigación

Sandeep se unió a Leverage Shares en septiembre de 2020. Está a cargo de la investigación de líneas de productos existentes y nuevas, clases de activos y estrategias, con un enfoque particular en el análisis de eventos y desarrollos recientes.

Sandeep tiene una larga experiencia en los mercados financieros. Comenzó en un hedge fund con sede en Chicago como ingeniero financiero, su carrera abarcó varios dominios y organizaciones durante un período de 8 años, desde la División de Prime Services de Barclays Capital hasta (más recientemente) el Equipo Index Research de Nasdaq.

Sandeep tiene una maestría en Finanzas, así como un MBA del Illinois Institute of Technology de Chicago.

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