NEW YORK ( TheStreet) -- U.S. equities will be tested this week at record highs as the Federal Reserve meeting and earnings from major technology companies may send stocks lower.
Fed monetary stimulus and strong momentum from tech companies have pushed equity markets to record highs in weeks past.
The Fed is expected to keep policy accommodative till 2014 due to the consequences of the government shutdown and the slow recovering labor market. The issue is not whether the Fed tightens this week, because it probably won't, but rather, what kind of guidance it will provide.
If the Fed gives a hawkish tone and leads investors to believe it is not fully committed to stimulus relatively deep into 2014 once the government shutdown reverberations have subsided, then the market may see this as a sign to sell.
On the other hand, if the Fed acknowledges the economy's weakness and makes it clear that stimulus is indefinite at this point, then that could keep the market at its lofty levels.
Strong tech earnings, meanwhile, have kept sentiment elevated in the recent run to equity highs. Companies such as
(AMZN - Get Report)
(MSFT - Get Report)
have outperformed expectations and helped the
keep its strong uptrend.
(FB - Get Report)
(AAPL - Get Report)
release their earnings. If they outperform expectations, then there is no reason for a selloff and equities could again close on fresh highs for the week.
The technical outlook for the market remains positive. Late last week, the
SPDR S&P 500
pushed higher, as pictured below. The move looked strong and helped push the index out of a multi-day consolidation.
Although one could make the argument for equities being overbought, there's no reason for a correction just yet. But a catalyst could emerge this week.
At the time of publication the author had no position in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.