US ─ When the US Federal Reserve (FED) embarked on an unprecedented tightening in its monetary policy to curb the then fast-rising inflation rate, the US Stock/Equity Market landscape immediately shifted its sentiment to the downside. After all, an increasing interest rate in this current post-pandemic market condition would taper the recovery and growth of risky assets, including stocks.

Since the beginning of the year, financial markets around the world have experienced a sharp shift in momentum to the downside. The forefront among these markets is undoubtedly the US Equity Market ─ whose primary index, the S&P 500, plummeted from almost 4,800 on the first trading day of the year to yesterday’s closing price (11th of July) at 3,854.44. The decline represents an almost -20% loss value in a span of six months. However, it seems that the current downtrend is yet to see the end of the tunnel as the upcoming earnings season is just around the corner.

Pessimism grew as the Upcoming Earnings Result looked Gloomy

One of the main reasons why the FED increased interest rates in the first place is to discourage expansionary economic activities such as spending and borrowing. This is terrible news to the US stock market as investors are banking for economic expansion to grow their investments. For instance, a higher interest rate will discourage companies from taking debt to finance their expansion endeavors since debt will be more expensive to pay off. At the same time, demand would dry up as consumers are more likely to save in this current economic tightening environment.

This is why investors’ outlook toward companies’ earnings report is gloomy at best. Despite this, numerous big caps companies are scheduled to release their earnings results this month. Some of these companies include Delta Air Lines and the beverage giant PepsiCo which are both scheduled to release their financial statements for the second quarter of this year later this week. At the same time, the big banks: Wells Fargo, JPMorgan Chase, and Citigroup are scheduled to release their financials at the end of the week.

Institutional and retail market participants expect the tightening monetary policy to manifest in the forthcoming earnings announcement. In addition, the current interest rate is likely to worsen as the FED is gearing up for another hike this month.

Coinciding with the release of Key Inflation Data

The recent market downturn also accounted for the expected announcement of “key inflation data” on Wednesday, the 13th of July, in the form of the Consumer Price Index (CPI). This installment of CPI will be crucial to the decision of the Federal Reserve on how many basis points it sees fit to add.

However, based on the minutes of the meeting released last week from the policy meeting held by the Federal Reserve last month, the US central bank remains unwavering in its resolve to add another significant rate hike this month as it is committed to tapering inflation as soon as possible. How significant this is will depend on the most recent inflation data that will be announced tomorrow.