The stock market was bouncing back Tuesday after getting crushed last week ahead as no news was proving to be good news.
“Markets stabilized following a mostly quiet weekend,” writes Tom Essaye, founder of Sevens Report Research.
The lack of news might be a welcome sight for investors, who watched stocks sell off last week. Each of the three major indexes fell at least 4% as the Federal Reserve revealed a more aggressive interest rate hiking plan. That ignited fears that rising rates—designed to stamp out still-high inflation—will put the U.S. economy into a recession. At the very least, it will cause economic growth to slow down.
That’s the message St. Louis Fed President James Bullard sent Monday, when he played down fears of a severe recession, saying that the U.S. economy should continue to grow in the coming several months. He did warn, however, that high inflation posed a serious risk to the U.S. economy.
Now, market participants are hoping that words from other Fed speakers won’t ruin Tuesday’s rally. At noon eastern time, Cleveland Fed President Loretta Mester will speak and Richmond Fed President Tom Barkin will speak at 3:30. Ideally, markets would like to hear that the Fed is able to cool inflation without causing a recession, though the odds of that have decreased slightly.
For the stock market, however, the focus has to be on what the Fed’s rate hikes will do to earnings. Though the market has fallen a lot this year, analysts have been reluctant to revise their earnings estimates lower. In fact, earnings per share expectations for S&P 500 companies, in aggregate, have risen this year, according to FactSet, despite the worsening economic outlook. Earnings for the index could see a roughly 8% drop this year, according to Evercore strategists, who point to the average drop in EPS estimates during the last three recessions.
It’s those earnings that will ultimately determine whether the rally has legs—or is just another opportunity to sell on the bounce.
Here are some stocks on the move Tuesday:
Twitter (TWTR) has risen 1.2% to $38.22 in premarket trading. Elon Musk told an audience at the Qatar Economic Forum in Doha that he would be “driving the product” at Twitter , while reiterating that he doesn’t necessarily want to serve as CEO after he completes the acquisition of the social media company.
Mondelez (MDLZ) has advanced 1.2% after announcing that it would acquire energy bar maker Clif Bar for about $2.9 billion.
Write to Joe Woelfel at email@example.com