The upcoming Fed meeting is anticipated to keep markets on edge.

• The upcoming Federal Reserve meeting on Tuesday and Wednesday is the major market event of the week, as investors anticipate further information regarding the central bank's strategy to increase interest rates.
• The earnings season is in full swing, with approximately half of the Dow 30 stocks reporting, and anticipated reports from the largest market-cap companies, Apple and Microsoft.
• In the upcoming week, significant economic information will be released, including the fourth-quarter GDP and personal consumption expenditure inflation data.

In the upcoming week, the Federal Reserve will meet and major tech companies, including Apple and Microsoft, will release their earnings reports, which may cause market turbulence to persist.

Since 2020, the worst week for stocks ended on Friday, with significant losses in technology and consumer discretionary sectors. The FANG darling experienced a sharp decline in its earnings on Thursday, and traders are closely monitoring whether other big tech companies will also suffer the same fate.

Wall Street experienced a difficult week, with the Nasdaq experiencing a 7.6% decline, its worst performance since March 2020. The S&P 500 also ended the week down 5.7%, leaving it 8.7% below its January 4th high.

Since 2008, the Nasdaq has experienced its worst start to the year through the first 14 trading days, with a 15.5% drop from its high.

The upcoming Federal Reserve meeting on Tuesday and Wednesday is the most significant event for markets, as investors eagerly anticipate any new insights on the central bank's interest rate increase plans for this year and the timeline for the first hike. According to economists, the Fed is predicted to guide markets towards a 0.25% rate increase in March.

Major earnings reports are expected from nearly half of the Dow 30's blue chips, including , I and , with reporting on Tuesday and Thursday, and on Wednesday.

On Thursday, the first look at fourth-quarter GDP will be given, followed by Friday's personal consumption expenditures data, which includes the Fed's preferred inflation measure, with the economy being the main focus.

The major indexes experienced sharp declines in value during a tumultuous week, with the consumer discretionary sector being the weakest, down 8.5%, and the communication services and technology sectors also experiencing significant losses, both declining by approximately 7%.

Some high-profile negative stock reactions have been observed during earnings season when investors were not satisfied with the information presented.

Netflix's stock price dropped by 22% on Friday following a disclosure about subscriber data in its earnings report released the previous day. Similarly, JP Morgan Chase experienced a significant decline a week prior to its earnings release, which revealed higher expenses and slower trading activity.

According to Julian Emanuel, the earnings season is not a significant macro catalyst to move the indexes significantly in one direction or the other. Instead, it is a stock-by-stock story.

If a company performs well, it is likely to receive a reward, but it will be less substantial than if it misses on either revenues or earnings. On the other hand, companies that have negative comments about their margins and costs will be punished disproportionately. It doesn't matter whether a company beats or misses, but if it has negative comments about its margins and costs, it will pay a price.

Fed ahead

The Fed is concerned about inflation, which is reflected in rising costs in company earnings and higher prices. Investors will closely listen to Chairman Jerome Powell's briefing on the Fed's inflation concerns when the Federal Open Market Committee releases its statement on Wednesday afternoon.

The Fed is not anticipated to increase interest rates or alter its policy at this meeting, but it may be preparing for how it will behave when it concludes its bond purchasing program, which is expected to occur in March. According to many economists, the Fed may commence raising its fed funds target rate from near-zero with a quarter-percentage-point hike in March.

Emanuel stated that the baseline is for there to be four hikes and the start of quantitative tightening occurring around the middle to later in the year. He believes the Fed will not take any actions to dissuade the market from this stance.

The Fed has stated that it may reduce its balance sheet this year, which would be another form of policy tightening. This would mean the central bank would stop replacing maturing securities on its balance sheet with market purchases, effectively decreasing the size of its nearly $9 trillion balance sheet.

Since the Fed released its December forecast, it has become more hawkish, favoring rate hikes and policy tightening. Powell is unlikely to change his tone this week, even with stocks selling off, according to Emanuel.

If Powell were to sound dovish, it would be considered a positive for the market, but we might argue that it wouldn't be. However, if the market doesn't believe he's going with the four-hike plan, it's likely that 10-year yields, which have broken out of the three-year range by going over 1.80%, could make a quick move to 2%.

He stated that growth is currently outpacing value, which could destabilize the market.

Some Fed watchers believe that the Fed is lagging behind.

According to Ethan Harris, Bank of America's head of global economic research, the Fed has never responded as slowly to an emerging inflation risk, and even today is signaling a benign hiking cycle. If inflation settles closer to 3% than 2%, it will be detrimental to both stocks and bonds.

Bond yields stall

The widely watched benchmark, which had been steadily increasing early in the week, dropped back down to 1.76% by the end of the week.

Ian Lyngen, BMO's head of U.S. rates strategy, stated that the bond market is pricing in a potential increase in the fed funds rate to 1.75%. He added that the Fed would need to signal its intention to raise the funds target in order for the 10-year rate to reach 2%.

"If the Fed does not come out as more hawkish, then we'll see a classic 'buy the rumor, sell the fact,' and the 10-year yield drifts higher." Yields move in the opposite direction of price.

The move higher in interest rates has had the most negative impact on tech and growth stocks, which are valued based on their future earnings potential. In a low-interest-rate environment, valuations can be higher.

As inflation rises and the Fed tightens, many strategists predict that cyclical and value stocks will outperform. Despite a 11.4% decline in the technology sector since the beginning of the year, energy has been the standout performer, with a 12.8% increase in value.

Emanuel stated that the Fed's goal is to tighten financial conditions, and if the Fed has observed the market's behavior in the first three weeks of the year, they may be content with it. However, Powell is unlikely to attempt to persuade the market to abandon its current state, as he is pleased with how the year has begun.

Emanuel predicts that the S&P 500 will end the year at 5,100. Regarding the current sell-off, he believes the S&P 500 may reach its 200-day moving average at approximately 4,425, but there is no assurance that this will mark the bottom of the downturn.

Week ahead calendar

Monday

Earnings: Zions Bancorp, , Royal Phillips,

9:45 a.m. Manufacturing PMI

945 a.m. Services PMI

Tuesday

Federal Reserve Open Market Committee meeting begins

Microsoft, Verizon, Texas Instruments, Lockheed Martin, Canadian National Railway, Hawaiian Holdings, Paccar, F5 Networks, Boston Properties are among the top-performing companies in the stock market.

9:00 a.m. S&P/Case-Shiller home prices

9:00 a.m. FHFA home prices

10:00 a.m. Consumer confidence

Wednesday

The earnings of AT&T, Tesla, General Dynamics, and Samsung Electronics are among the highest on the Nasdaq, while Seagate Technology, Lam Research, Teradyne, Flex, SLM, and LendingClub also have strong earnings.

8:30 a.m. Advance economic indicators

10:00 a.m. New home sales

2:00 p.m. FOMC decision

2:30 p.m. Briefing with Fed Chairman Jerome Powell

Thursday

Visa, Blackstone, Altria, Deutsche Bank, STMicroelectronics, Marsh and McLennan, Sherwin-Williams, T. Rowe Price, Ball Corp, Alaska Air, SAP, Southwest Air, HCA Healthcare, Textron, Ethan Allen, KLA Corp, Western Digital, Canadian Pacific Railway, Olin, Danaher, and others are among the top-performing companies in their respective industries.

8:30 a.m. Initial jobless claims

8:30 a.m. Durable goods

8:30 a.m. Q4 advance real GDP

10:00 a.m. Pending home sales

Friday

Synchrony Financial, Charter Communications, Philips 66, Booz Allen Hamilton, VF Corp reported earnings.

8:30 a.m. Personal income/spending

8:30 a.m. Q4 Employment cost index

10:00 a.m. Consumer sentiment

The briefing with former Fed Chairman Ben Bernanke has been replaced with a briefing with current Fed Chairman Jerome Powell.