The Next Challenges for the Markets: Debt Ceiling Drama, Fed Meeting, and Earnings Season

President Joe Biden signed a temporary stopgap extension to prevent a government shutdown, but the next funding deadline is in November. Despite avoiding disaster for now, concerns about the debt ceiling drama are eroding confidence in the country and raising questions about investing in US assets. The markets will also be influenced by two other factors unrelated to politics: the upcoming Federal Reserve meeting and the start of earnings season.

The Federal Reserve meeting in October is expected to lay the groundwork for an interest rate increase. Rising oil prices and persistent inflation are pushing businesses to consider price increases, causing concerns about profitability. Higher interest costs as a result of a rate hike could further impact corporate profits. Additionally, earnings season is approaching, and the consumer backdrop looks uncertain. Consumers are cutting back on spending, as evidenced by decreased flight bookings and credit bill payment delays.

Many companies have issued negative earnings per share (EPS) guidance, signaling potential challenges in the business environment. While it’s not uncommon for companies to be conservative with their guidance, a high percentage of negative EPS guidance suggests underlying issues that require valuation adjustments.

In light of these challenges, the markets will closely watch the Fed’s inflation-fighting approach and the short-term performance of companies during earnings season. These factors will likely overshadow political developments and continue to impact market sentiment in the coming weeks.

Source: Yahoo Finance (Brian Sozzi), no URL provided.