The AI-driven Big Tech rally lately seems like it could be running out of gas. And that puts some added pressure on behemoths Microsoft, Meta, Apple, and Amazon as they release quarterly results this week. The profit figures for these firms could change the whole story for the market, after a stellar start to the year that’s been driven by them and just a few other of the sector’s giants. Investors – who are likely holding their breath for even more standout performances – should brace for volatility. A mere whiff of disappointment could trigger another sharp selloff this week, just as it did last week.
And sure, those Magnificent Seven firms are likely to hog the spotlight, but it’s worth paying attention to the earnings reports from Procter & Gamble, Starbucks, and Mastercard too. Their figures are more than just numbers – they're a financial pulse check on the whole country. And that checkup comes at a crucial moment, as smaller firms – typically the ones more sensitive to domestic economic wellbeing – are beginning to regain momentum lost to those AI-linked tech lords.
Now, earnings snapshots are helpful, but they're essentially a look in the rearview mirror at the most recent performance. For a peek through the windshield at what’s coming up, you might want to keep your eyes on the world’s central banks. This week, the Federal Reserve, the Bank of Japan, and the Bank of England are all set to announce interest rate decisions. And since borrowing costs drive pretty much everything, what they do (and what they say) matters.
Of course, investors are eagerly anticipating rate cuts in the US and the UK, but there’s no guarantee they’ll see them now. Inflation has fallen closer to the central banks’ target, sure, but it's still too high and volatile for policymakers to feel confident enough to slash rates just yet. See, they’re cautious about triggering another inflation spike that could hurt the economy – and their credibility. But it’s a delicate balance: unemployment has been rising recently, and central banks don’t want to be forced into steep rate cuts later if the economy is slowing faster than anticipated. So rate cuts are likely on the horizon, but whether they’ll happen as early as this week is still anyone’s guess.
And that’s the story for almost every central bank out there – except Japan. See, Japan’s economy endured two decades of deflation and now is welcoming a little inflation action. That’s why it’s been the only major central bank to keep its key rates near zero. But consumer price rises have now been above target for more than two years, and the yen has fallen a bit too far too fast for the BoJ’s tastes, so don’t be surprised if these central bankers hike rates when they meet this week.
