Tech Giants Face Earnings Test Amid Fed Hike Fears

Market volatility is expected to rise this week as investors prepare for a triple threat of earnings reports, inflation data, and Federal Reserve decisions. Microsoft and Meta will release their quarterly earnings on Wednesday, followed by Apple and Amazon on Thursday. The Bank of England and the Federal Reserve will also announce their interest-rate decisions this week, with European inflation data being closely watched.

Richard Prilvitzky, a partner at Goldman Sachs, notes that these events are unfolding against a backdrop of high oil prices, elevated government bond yields, and two consecutive weeks of stock-market weakness. He recommends buying VIX call options as an effective hedge against tail risk, citing historical data showing increased index-level volatility in U.S. midterm election years.

Goldman Sachs' data also show that stock-specific dispersion is holding back overall market volatility, with the MSCI World Index appearing to be capped around 4,885 points. Deutsche Bank strategists note that systematic investors' elevated positions are currently at the 70th percentile and may become vulnerable if volatility rises or equities break below their range.