Earnings, the Fed, and What to Watch 

with Adam Phillips, Managing Director, Investments 

It’s shaping up to be a pivotal week for markets, with two major forces in focus: earnings season and the Federal Reserve.

On the earnings front, we’re still early in the reporting cycle, with roughly 30% of S&P 500 companies having released results so far. That said, this week carries more weight than most. Companies representing nearly half of the index are set to report, including five of the so-called “Magnificent Seven” names that have played a significant role in driving market performance in recent years, particularly through their leadership in artificial intelligence.

So far, earnings have been mixed. Financials led off the season, followed by transportation and travel-related companies. Some of these businesses have struck a more cautious tone, particularly those exposed to ongoing geopolitical tensions in the Middle East. Airlines and cruise lines, for example, have already begun pulling back full-year guidance, citing uncertainty tied to the conflict. Whether that caution spreads to other sectors remains to be seen, but this week’s technology earnings will likely set the tone for markets in the near term.

At the same time, attention will turn to the Federal Reserve. The Fed begins its latest two-day policy meeting this week, though expectations are low for any immediate action. This is not considered a “live” meeting, meaning no rate changes are anticipated. In fact, current market expectations suggest the next rate cut may still be more than a year away, as inflation pressures remain persistent.

Even without a policy move, this meeting carries added significance. It could be Jerome Powell’s final meeting as Fed Chair, with his term set to expire in May. While Powell could remain on the Federal Reserve Board as a governor, investors will be paying close attention to his comments for any signals about the path forward and his own future role.

Adding another layer to the story, the Senate Banking Committee is expected to vote this week on Kevin Warsh, the nominee to replace Powell as Fed Chair. If confirmed, Warsh could take over as early as mid-May, ahead of the Fed’s next scheduled policy meeting in June.

For investors, leadership changes at the Fed do not always drive immediate market reactions, but they can shape longer-term policy direction. Warsh has signaled a stronger focus on inflation and has been critical of the Fed’s past reliance on quantitative easing. He has also questioned the value of forward guidance, raising the possibility of less transparency around future policy decisions.

That said, it is important to remember that the Fed Chair is just one vote among twelve on the Federal Open Market Committee. Any meaningful shift in policy is likely to be gradual, not immediate.

Taken together, this week’s developments highlight how interconnected markets, policy, and global events have become. Earnings, particularly from large technology companies, will help shape near-term sentiment, while the Fed’s messaging and potential leadership transition could influence expectations for interest rates and economic policy over time.

As always, if you have questions about how these developments may impact your financial plan, do not hesitate to reach out to your advisor.

 Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA^®), a CERTIFIED FINANCIAL PLANNER™ (CFP^®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio. 

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Video Transcript: 

Adam Phillips:

Well, this is shaping up to be a big week for markets. We're still in in the middle of earning season. So far, about 30% of the companies in the s and p 500 have reported, but this week we will hear from companies that make up close to half of the s and p 505. Of the seven magnificent seven companies are reporting earnings this week, and that's really important because a lot of these names are those that are so closely associated with artificial intelligence.

And as we know from recent updates, they have really been leadership for so long. They've helped to propel the s and p 500 large cap stocks, two new record heights in recent years. So this is gonna be a really big week. I will say so far we've heard from a number of companies. Started with, uh, as usual with, uh, financials with banks, with some of the logistics and travel companies last week.

We've heard from some companies that have had a more cautious tone as it relates to the ongoing war in the Middle East. We heard from some of the, the, uh, the cruise lines last week, some of the. Uh, some of the airlines last week and they actually pulled back their guidance for the full year in light of what's going on in the Middle East.

So we'll see if, if we hear more about that in the weeks to come. But this week I think it's, a lot of it is going to be about technology, specifically artificial intelligence. So keep an eye out for that. Now let's shift gears. Let's talk about the Fed. This week is also Fed Week, so the Federal Reserve, uh, will be meeting starting on Tuesday tomorrow.

Uh, their meeting is, is always two days, and so they will finish up on Wednesday. Now, this is not what we call a live meeting. They're not going to cut rates or raise rates for that matter. At this meeting, I will highlight the fact. That because of this ongoing conflict in the Middle East and the lingering inflationary pressures, the market is not expecting, uh, the another fed rate cut until well over a, a year from now.

So we have a ways to go. Now that could always change, but this is not a live meeting. The reason that it's important is because this could very well be Jerome Powell's last meeting as Fed chair. So we will hear from him as always following the, the uh, FOMC meeting. When it finishes on Wednesday, we will hear.

As always, we'll be looking for, uh, some additional, uh, guidance around what they're, what they're talking about, what they're seeing in the economy, how concerned are they with, uh, inflationary pressures that continue to linger in the US economy. But. What a lot of people are really going to be focused on is what does Jay Powell, uh, Jay Powell have planned for, uh, for his future?

So, as I said, this could be his last meeting as Fed chair. His, his term as Fed chair expires in May, but his term as governor doesn't expire for another two years. So normally when a Fed chair's term expires, they normally leave. Um, but the, the question is, will that be the case this time around? We, we think that there is a chance and, and Powell has left the door open to possibly staying on and serving out the duration of his term as fed governor so that he can continue to have some sort of an influence and say on monetary policy.

Let's stick with the Fed here because I said this is a big week. And on Wednesday at the same time, the the Federal Reserve is wrapping up their meeting. The Senate Banking Committee will be voting on Jerome Powell's replacement as Fed chair. They'll be voting on Kevin Warsh, who President Trump has nominated to replace Jerome Powell as fed chair.

That meeting is able, that vote is able to, uh, proceed because last week the Department of Justice actually suspended their investigation into Jerome Powell and the $2.5 billion renovation project on the Fed headquarters. And so they, because of that, because of that D-O-G-D-O-G-A investigation, Senator Tom Tillis, who's a voting member on the Senate Banking Committee, he had said that he wouldn't vote.

To move forward with anyone that President Trump, uh, nominated as the next Fed chair until that DOJ, uh, in, uh, investigation was suspended or, or just stopped altogether. So now that vote can continue, we expect, and the, the market expects for, uh, Kevin Walsh to be approved to take over, uh, as, as soon as mid-May.

So, meaning that when the Fed. Reconvenes at their next policy meeting, which isn't scheduled until June. They'll have a new chair in place. Why does this matter for investors? Well, I, I think just, if we just think about it historically, I don't think that most retail investors have really paid much attention to who the, the Fed chair is.

I think that it's really grown in prominent here in recent years because we saw inflation hit the highest levels in 40 years. We saw a lot of. Political pressure being put on the Fed chair to cut interest rates. And so I think it's just a, a much more visible and influential role than it has been in the past.

But why does this matter? What's, what's different about Kevin Warsh? I think it is interesting just to think about what this means for the future of monetary policy potentially. So in his testimony, uh, last week, Kevin Warsh talked about what he might do differently. He really focuses on inflation. He thinks that the Fed has, uh, perhaps drifted away from their original mandate and their reliance on quantitative easing is perhaps what got the economy into trouble with inflation, uh, in the first place a few years ago, he's talked about it as reverse Robinhood.

You're stealing from the poor and giving from the rich. Given to the rich, he's also talked about it as, uh, as fiscal policy in disguise, in that you are essentially, um, uh, allowing the, the government to spend more money because the Federal Reserve is there to be a source of demand for new treasuries.

That hit the market. So this is what he might do differently. He also thinks that the Fed has been perhaps a little bit too open with investors about, uh, about their policy moves and what they're thinking. He doesn't like the idea of forward guidance, so he might look to do away with these post FOMC press conferences.

We'll see if the market actually allows that. I think it's really nice to hear what the central bankers are thinking. Um, so, but this is just what's in store. We know that, uh, that Kevin Walsh might. Advocate for lower policy rates than Jerome Powell would have. But let's also just remember that even though he's the chair, he is one of 12 voting members at the FOMC, so you can't change policy overnight.

I think it'll be interesting to see how he tries to influence it, uh, and guide policy going forward. So I shared a lot there. Uh, needless to say, this is gonna be a, a very interesting week. Uh, I'll look forward to, uh, reporting back next time we get together. But if you have any questions until then, please don't hesitate to reach out to your financial advisor.