Stock Market Outlook: What to Watch in the Week Ahead

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What can we expect from the stock market in the week ahead? Investors will continue to digest news of recent bank collapses, and the Federal Reserve will release its next decision regarding interest rates.

Brace yourself for more ups and downs from the financial markets.

“We anticipate volatility in the near term, helped by uncertainty around Fed policy, and fears of whether banking issues are more systemic,” strategists at Invesco wrote in a recent note about concerns for the financial health of Swiss bank Credit Suisse.

Looking forward, here’s what market watchers will have their eyes on the week of March 20:

The Fed meeting

On Wednesday, the Federal Open Market Committee — the arm of the Fed that makes decisions about the target range of the benchmark federal funds rate — will release its decision on whether there will be an interest rate increase, and by how much, following the committee’s two-day meeting.

The Fed has been hiking interest rates for a year in an effort to tamp down inflation, but those hikes have also been weighing on the price of financial assets, like stocks and bonds. The most recent interest rate hike was smaller than the increases investors grew accustomed to throughout 2022, but Fed Chair Jerome Powell indicated after last month’s hike that the central bank may be forced to raise rates higher than investors are expecting if economic data remains hot.

Some experts, like analysts at Goldman Sachs, have said they now believe the Fed will forego another interest rate increase due to the current troubles for the banking industry. As the Fed is caught between addressing still-stubborn inflation and concerns around the banking news, this decision will be an important one for the economy and the markets moving forward.

Aftermath of bank news

Markets have been rattled following the failures of Silicon Valley Bank and Signature Bank, as well as concerns about the financial health of Swiss bank Credit Suisse and most recently San Francisco-based First Republic.

The situation is still unfolding, keeping investors on edge.

Investors will be “continuing to assess the scope of the bank crunch, particularly on the heels of Credit Suisse woes and questions relating to how widespread the banking sector calamity might become and how regulators will handle the situation in both the U.S. and abroad,” says Greg Bassuk, CEO at AXS Investments.

Economic data

On Tuesday, the National Association of Realtors will release the latest data on existing home sales, which helps gauge how the U.S. housing market is doing overall.

Bassuk says it’s data investors will be watching.

“Investors have been searching to hang their hats on more consistent economic data, rather than the very mixed economic reports over the last several months,” he adds. Those mixed reports have created “a cloud of confusion and uncertainties regarding the health of the U.S. and global economics and the resulting direction in which the Fed will move in 2023 on its rate hike policies.”

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