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Forex Market Analysis: Fed’s Policy & Big Tech 30 Jan 2024

January 30, 2024

Forex Daily Analysis: 30 Jan 2024

CURRENCIES:

  • Event Overview: Fed’s First Monetary Policy Decision of 2024
    • Announcement Date: Wednesday, Jan 31, 2024
  • Potential Market Impact
    • Increased Volatility Expected for Gold Prices, U.S. Dollar, and Stocks
    • Traders Advised to Prepare for Heightened Volatility and Unpredictable Price Movements
  • FOMC Expectations
    • FOMC Anticipated to Maintain Key Interest Rate in 5.25% to 5.50% Range
    • Possibility of Dropping Language Indicating Likelihood of Additional Policy Firming
    • Potential Shift Toward a More Dovish Stance
  • Policy Considerations
    • Strong U.S. Economy Supports a Tightening Bias
    • Dovish Posture Might Emerge to Address Labor Market Concerns
    • Early Action Seen as Risk Mitigation to Avoid Extreme Accommodative Measures Later
  • Potential Outcomes and Market Responses
    • Possibility of First-Rate Cut Teased for March Meeting
      • Result: Broad-Based Drop in U.S. Treasury Yields, Bullish for Stocks and Gold, Bearish for U.S. Dollar
    • Hawkish FOMC Stance, Pushing Back Against Rate Cut Expectations
      • Result: Sharp Rise in Nominal Yields and U.S. Dollar, Hostile for Equity Market and Precious Metals in Near Term
  • Market Insights and Preparations
    • Expect Attractive Trading Opportunities, But Caution Advised Due to Potential Volatility
    • Monitoring FOMC’s Language Changes Crucial for Anticipating Market Reactions
    • Traders Encouraged to Stay Informed and Navigate Complex Market Conditions

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STOCK MARKET:

  • Big Tech Dominance
    • Recent data from FactSet emphasizes continued significance of Big Tech in market dynamics.
    • Market strategists anticipate Big Tech to drive Q4 earnings growth for the S&P 500, countering calls for market rally broadening.
  • Earnings Expectations
    • Apple, Alphabet, Microsoft, Amazon, Meta, and Nvidia projected to contribute a combined 53.7% earnings growth in Q4.
    • In contrast, expectations for the remaining 494 S&P 500 companies suggest a 10.5% decline.
    • Companies such as Apple, Alphabet, Microsoft, Amazon, and Meta scheduled to report Q4 results this week.
  • Overall Market Direction
    • Following Tesla’s Q4 disappointment, Evercore ISI’s Julian Emanuel deems stock price reactions to Big Tech earnings as “critical for overall market direction.”
  • Massive Expectations for Some
    • Notable earnings projections include Nvidia’s expected 400% YoY growth and Meta’s anticipated 175% YoY growth in EPS.
  • Continued Growth Anticipation
    • FactSet’s second chart predicts nearly 80% earnings growth in Q1 2024 for Amazon, Alphabet, Meta, and Nvidia.
    • The remaining 496 companies, including Apple, Microsoft, and Tesla, forecasted to grow earnings by a combined 0.3%.
  • Market Valuation
    • Massive earnings expectations contribute to the S&P 500’s all-time highs, potentially justifying its valuation.
    • Increased technology weight in the index is seen as a factor supporting overall growth.
  • Tech’s Role in Recent Market Rally
    • Analysis by Yahoo Finance’s Jared Blikre indicates that, excluding Tesla, tech companies drove nearly 90% of the market’s growth during the January rally.
  • Beyond Quarterly Numbers: Key Market Narratives
    • Tech earnings updates extend beyond financial figures.
    • Focus on narratives during earnings calls, including:
      • Artificial intelligence advancements at Meta and Nvidia.
      • Scrutiny on Microsoft and Amazon’s cloud revenues.
      • Apple’s products business reflecting hardware demand and consumer spending.
  • Market Significance of Tech Earnings
    • Tech earnings viewed as crucial indicators not only for performance expectations but also potential warnings of economic slowdowns if results fall short of estimates.

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