A busy week is coming with important economic data releases and earnings announcements from major tech firms like Meta, Microsoft, Apple, and Amazon. Key reports include the FOMC rate decision on Wednesday at 2 PM, followed by a press conference, and US employment data on Friday at 8:30 AM. Other releases include Australia’s CPI on Tuesday night and various announcements on Wednesday. The ADP nonfarm payroll change is expected to show a gain of 75K this month, up from a loss of 33K last month. The advance GDP for Q2 is estimated at 2.5%, a bounce-back from last quarter’s -0.5%. Both the Bank of Canada and the Bank of Japan are expected to maintain their rates. On Thursday, Canada’s GDP estimate is projected at -0.1%, while the US Core PCE price index estimate is +0.3%.

Earnings Announcements

This week, major tech companies will report their earnings, including Meta, Microsoft, Apple, and Amazon, along with UnitedHealth, Boeing, Merck, and Visa. Waste Management will release its earnings on Monday after the market closes, while significant announcements from UnitedHealth, PayPal, Boeing, and Merck will occur before and after market close from Tuesday to Friday. We anticipate a period of heightened event risk, leading to increased market volatility. The CBOE Volatility Index (VIX), known as the market’s “fear gauge,” is currently around 14, which is low and likely to change. This indicates that options pricing may not yet fully account for potential price fluctuations. Derivative traders should be ready for a rise in implied volatility, especially in options related to major tech companies and broad market ETFs like SPY. For example, options markets are pricing in an estimated 8.5% post-earnings move for Meta, a significant increase that will raise premiums leading up to Wednesday’s close. We expect the cost of protection and speculation to rise as these key events approach.

Federal Reserve’s Meeting

The Federal Reserve’s meeting is the main event of the week. Traders should pay more attention to the tone of the press conference after the rate decision. Historically, the S&P 500 has fluctuated nearly 1% on Fed decision days, but the key detail for option sellers is the drop in volatility once uncertainty is resolved. Recent inflation data, like the May CPI at 3.3%, came in lower than expected, so any hawkish surprise from Powell could lead to a significant market reaction. For those who think the market may be overestimating potential moves, selling premium could be a good strategy. By using strategies like iron condors or short strangles on stocks like Apple or Amazon, traders can benefit if the stocks move less than the expensive options predict. This approach bets that the market will be calmer after the announcement than it was leading up to it. On the other hand, since the recent market gains are heavily concentrated in the “Magnificent 7,” there’s a chance for a swift repricing if any disappointments arise. Buying simple puts or calls on these stocks is a straightforward way to bet on larger-than-expected moves, especially if weak guidance or a big earnings miss occurs. A trader expecting a negative surprise from Microsoft could see strong returns if its results don’t support its high valuation. Finally, don’t get too relaxed after the tech earnings and central bank decisions. The U.S. employment report on Friday is still a key factor that could either confirm or completely overturn the market’s initial reactions. A surprisingly strong jobs number and wage growth could reignite inflation fears, affecting a market that thought the week’s main risks had passed. Create your live VT Markets account and start trading now.

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