After a brutal month in April, equity investors would expect the markets to stabilize soon. However, the month of May will witness several major events which could drive volatility higher across asset classes.

All eyes will be on the policy meeting of the Federal Reserve which will take place on May 3 and May 4. Experts believe the central bank will increase interest rates by 50 basis points which will be the first hike of over 25 basis points in the last 22 years. Additionally, the Fed is also likely to roll off assets from its balance sheet, which indicate quantitative tightening measures will gain pace.

In an event hosted by the International Monetary Fund last month, Jerome Powell, the Chairman of the Fed stated, “We really are committed to using our tools to get 2% inflation back. It is appropriate in my view to be moving a little more quickly. And I also think there is something in the idea of front-end loading … that points to the direction of 50 basis points being on the table.”

The Fed’s preferred inflation indicator, which is the personal consumptions expenditure surged 5.2% year over year for the month of March 2022.

 

April jobs report will release on Friday

The Labor Department is scheduled to report the monthly jobs report for April on Friday which is likely to impact the central banks policies going forward. However, the Federal Reserve might be open to trade lower GDP growth and a small uptick in unemployment levels to offset raging inflation rates.

Economists forecast non-farm payrolls to rise by 391,000 in April compared to an increase of 431,000 in March, which will decrease unemployment rates to 3.5%. Further, another closely watched indicator is hourly earnings which is expected to rise by 5.5% year over year in April. It will be interesting to see if higher wages are driving prices northwards which in turn results in unsustainable inflation rates.

 

Earnings will drive S&ampP 500 in May

Big tech reported earnings in the last week. While Meta Platforms (NASDAQ: FB) and Microsoft (NASDAQ: MSFT) managed to beat Wall Street consensus, heavyweights such as Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), and Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) disappointed investors resulting in a broader market sell-off.

Apple stated supply chain disruptions is likely to impact revenue between $4 billion and $8 billion in the June quarter. Comparatively, Amazon’s negative bottom-line and tepid revenue growth drove the stock lower by 14% on Friday.

Right now, indices such as the S&ampP 500, Nasdaq Composite and the Dow Jones are trading 13.5%, 23% and 9.94% respectively below all-time highs. In addition to interest rate hikes, surging inflation and supply chain issues, corporate earnings will also be impacted by higher commodity prices and geopolitical tensions.

Leading investment firm, the Bank of America advised investors to load up on consumer staple stocks as there is 33% chance that the U.S. economy will slide into recession. It also trimmed its S&ampP 500 target for 2022 to 4,500 from 4,600 as the flagship index re-entered correction territory last week.

Bank of America also emphasized that the average peak-to-trough decline for the S&ampP 500 stood at 32% during recessions which suggests the downside risk remains significant if recession fears come true.

The U.S. GDP fell by 1.4% in Q1 of 2022 which was unexpected. Bank of America also claimed recession risks are low for now but remain elevated for the next year.

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