US stocks' 2023 surge faces Fed test even as profits improve
US stocks are approaching a record high and the outlook for Corporate America is only expected to brighten. Now investors are waiting to see if the Federal Reserve derails the market's bull run. Amid signs that inflation pressures are finally ebbing, setting up what has historically been a bullish stretch, the S&P 500 Index is a mere 5.4% below its all-time peak.
It's a backdrop that raises the stakes for this week's pivotal central bank meeting, with economists still debating whether a recession is ahead this year. The danger, of course, is that a resilient labour market pushes policymakers to signal further tightening beyond this week's expected rate hike, jeopardising Wall Street's profit forecasts, especially for the high-flying tech shares that have been key to this year's advance. «The risk is if the Fed feels compelled to reaccelerate the tightening cycle,» said Ed Clissold, chief US strategist at Ned Davis Research.
«If that's the case, it could end up being the policy mistake that everyone was looking for.» Investors are bracing for a massive week on two fronts. Around 170 companies in the S&P 500, accounting for some 40% of its market capitalization, are scheduled to report earnings, including bellwethers Microsoft, Meta Platforms and Google parent Alphabet. And yet Wednesday may prove decisive, with the Fed projected to lift its benchmark rate to a 22-year high.
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