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Alexis Christoforous of ABC News financial reporter highlights how fears over inflation and Federal Reserve rate increases have rattled investors and how artificial intelligence-related companies have seen some stocks climb higher.

Stocks drifted higher on Wall Street ahead of a week with updates on where inflation and corporate profits are heading.US Stock Market News

The economy’s raging inflation rate coincides with sky-high corporate profit margins. Many of the largest packaged food, consumer staple and automotive companies are making massive amounts from price hikes even as sales volumes decrease – leading to decreased profits and investor expectations of future earnings.

economists often blame corporate greed for rising prices, suggesting that firms raise prices simply to maximize profit. But research conducted by the Kansas City Federal Reserve suggests otherwise; their study concluded that rising corporate profit margins accounted for up to half of inflation during 2021 – suggesting businesses weren’t simply gouging customers by raising prices at higher levels than anticipated as costs escalated.

Federal Reserve officials’s decision to raise interest rates twice this year due to increased costs has contributed to stock losses; investors fearing it would eventually slow the economy have held back share values; however, concerns have subsided somewhat since and analysts suggest the market might soon experience an upswing.

Last week’s rebound started with gains spurred by data showing inflation pressure may be decreasing, and has since brought the S&P 500 within 6% of its all-time high. Corporate earnings announcements also provided additional evidence that companies were adept at managing both high but declining costs (labor and inputs) as well as robust but moderate demand (sales).

Next week will be an eventful one for investors. On Tuesday, the Federal Reserve’s two-day policy meeting begins and it is widely expected to raise interest rates again. Also on tap for next week: second quarter gross domestic product report and snapshot inflation data as well as updates on home prices and new and pending home sales updates.

Investors will also get quarterly earnings reports from tech titans Microsoft, Meta Platforms and Alphabet parent Google; banks such as JPMorgan Chase, Citigroup and Goldman Sachs; as well as energy companies Chevron, Exxon Mobil and Occidental Petroleum who will release results during Q2.

Stocks drifted to a mixed close after data suggested the U.S. job market is still warm enough to keep the economy growing but maybe not so hot that it stokes inflation much higher||US Stock Market

ABC News chief business correspondent Rebecca Jarvis reports that investors shouldn’t be dismayed that the Dow, S&P 500 and Nasdaq remain below their peak levels seen in 2022; in fact, stocks have already made significant strides toward recovering most of the losses suffered during last year’s bear market.

As investors weigh their investment options, inflation and Federal Reserve rate increases are top of mind. A report released Tuesday indicated that inflation increased slightly during August; this could prompt the Federal Reserve to raise rates once again in response to rising prices, potentially having an adverse effect on the economy; in turn, raising rates steadily has helped ensure growth is sustained over time.

Market participants await Jerome Powell’s remarks before an audience of central bankers on Wednesday. Most traders anticipate an interest rate increase by the Federal Reserve as part of its tightening cycle – this would mark its eleventh increase this tightening cycle.

Energy stocks were among the strongest performers on Friday as oil prices rallied, sending oilfield services providers Schlumberger (SLB), Halliburton (HLT) and Marathon Petroleum (MPR) all climbing more than three percent each while crude prices surged as much as six percent to reach its highest point since May.

Tech companies were another factor driving stocks higher. Shares of semiconductor manufacturer Marvell Technology (MRVL), a maker of artificial intelligence chips, rose by over 5 percent while networking company Arista Networks (ANET) and Synopsys (SNPS), which provides chip design tools, saw their shares gain nearly 4 percent each. All three companies are expected to announce earnings next week.

Even with recent gains, analysts remain wary about the stock market. They point out that these recent advances come after an impressive start to 2019, and fear the rally may be derailed by an underwhelming second-quarter earnings season for S&P 500 companies; earnings are projected to decrease year over year and financial sector firms should experience greater earnings declines than others in this second-quarter earnings season.

Stocks tumbled on Monday amid fears over inflation and Federal Reserve rate increases.

As stocks tumbled on Monday, investors grappled with worries that rising inflation might prompt the Federal Reserve to raise interest rates again, raising borrowing costs for businesses and consumers and potentially leading to slow economic growth or even recession.

Investors were alarmed to hear reports that China’s economy had slowed, prompting them to rush toward safety and push down riskier assets’ prices; stocks fell across Europe and Japan and yields on 10-year Treasurys hit their highest point since November.

Experts warn investors not to panic in response to this selloff; rather they should adjust their expectations of future rates of interest, giving them reason for optimism.

Investors in the United States are eagerly awaiting two upcoming speeches by Federal Reserve Chair Jerome Powell at Jackson Hole this week, as well as Friday’s inflation report which should provide an important measure of consumer spending – it should show an expected uptick.

Market participants expect the Federal Reserve to raise interest rates later this year. Analysts remain divided as to whether or not they think that raising rates enough to control inflation while keeping them low enough not to overheat the economy and cause recession is possible.

As uncertainty increased, technology and financial stocks experienced the steepest losses; Apple Inc and Microsoft Corp both dropped by more than three percent, while Tesla Inc fell 2.4%. Homebuilders also experienced their worst performance since November as mortgage rates reached their highest point since 2016.

HCA Healthcare suffered the largest decline among healthcare stocks, dropping 21% after it announced earnings expected to be at or near the low end of its previously forecast range and reduced its outlook for 2022 and 2023.

Stocks have rebounded even as recession worries loom.

This week, stocks have seen a remarkable rebound even amid investors’ worries of an imminent recession. Some analysts expect this momentum to continue while others remain doubtful.

Although often confused as synonymous, the economy and stock market are two distinct entities. An economy refers to all production of goods and services within a nation while stock exchanges provide an avenue where individuals buy or sell shares of publicly-held companies.

Goldman Sachs conducted a study that revealed stocks have performed admirably during recessions. They estimated that, on average, the S&P 500 returned an average 14% annually after each recession ended, as unemployment remains low and interest rates decreased relative to what they otherwise would have been. There’s one caveat though – for any successful transition during a short recession period; longer ones can strain economies more and lead to sharper market declines.

Fears of recession have driven some investors away from riskier assets like stocks and bonds, toward safe haven assets like gold or bonds, according to strategists. Yet recent stock market rallies demonstrate that investors remain willing to put money in more volatile investments, they add.

One theory behind the rebound may be investors’ increased confidence in the Federal Reserve’s ability to regulate inflation and reduce risks of recession. With another rate increase likely announced this week by the Fed, investors will closely monitor any indications that it might soon stop increasing rates.

Investors are keeping a close eye on earnings reports this week for any clues as to where the economy stands. Analysts expect Walmart and Facebook to report solid results, while investors will keep an eye on consumer spending habits which have an enormous impact on our economy.

Strategists believe a potential recession won’t look like those we’ve experienced recently; rather, it could be more gradual. When an economy falters, investors should prioritize consumer and healthcare stocks, along with financial firms as these could perform best during an economic slowdown, according to strategists. Read More>>