Even though theoretically ASX shares reflect the fortunes of the underlying business, the harsh reality is that external factors like the economy have a huge bearing on valuations.
This is why it's important to keep an eye on domestic and global events that could impact on the business world, investor sentiment, or consumer confidence.
Here are the three developments that you should monitor this week, according to eToro market analyst Josh Gilbert:
1. RBA interest rate decision
Hands down this is the most important event for stock portfolios this week.
After 12 rises in 14 months, will the Reserve Bank of Australia hold or hike interest rates on Tuesday afternoon?
It will be a difficult decision, according to Gilbert.
"Q2 CPI released last week showed that inflation is declining in Australia," he said.
"There is still a long way to go in order to bring inflation, which still sits at 6%, back to a target of 2% to 3%."
Although cooling inflation strengthens the case for a hold, another metric could make the board think more tough love is required.
"Australia's labour market continues to show resilience, which means rates may stay higher for longer."
Financial markets are factoring in only a 13% chance of an interest rate rise on Tuesday.
"Although another pause seems to be on the cards this week, markets still believe that the Reserve Bank has another hike in the tank, pricing in a 75% chance they will hike before year-end."
A survey last week found 67% of economists are expecting a rate hold in August.
"The good news for investors is a pause from the RBA this week could be the catalyst to propel the S&P/ASX 200 Index (ASX: XJO) within touching distance of record highs, and may readjust market pricing to see 4.1% as the peak."
2. Reporting season begins
Although it's not quite August yet, reporting season already unofficially kicked off last week with Rio Tinto Ltd (ASX: RIO)'s half-year numbers.
"This week sees two more names reporting in Credit Corp Group Limited (ASX: CCP) and BWP Trust (ASX: BWP)," said Gilbert.
"Investors will soon gain insight into the Australian companies that are effectively manoeuvring through an undoubtedly difficult macroeconomic landscape."
He noted how some companies, such as CSL Limited (ASX: CSL), have already managed expectations by pre-warning investors with downgraded profit guidance.
"Investors' focus should be on cost control measures and then on margins, given that over the past year, inflation has been at a 30-year high," said Gilbert.
"Unfortunately for dividend-loving investors, some corporates may decide to trim dividends in a bid to preserve balance sheets."
He reminded punters to not forget to check the outlook commentary for the 2024 financial year.
3. Apple earnings
US giant Apple Inc (NASDAQ: AAPL) is a stock that many Australians possess in their portfolios.
Gilbert pointed out that the computing giant has gone gangbusters this year.
"Apple shares have had a strong start to 2023, gaining almost 50% year-to-date and [the market cap] tipping over the historic $3 trillion mark in June."
The US market is still skittish, so showed no mercy with other tech company results that were anything less than perfect.
Apple's announcement on Friday morning Australian time, therefore, will "have no margin for error".
"China's faltering economic recovery will be a worry for investors, particularly with consumers in the region not spending at the levels Apple is used to," Gilbert said.
"The bright spot is likely to be services revenue, one of the only segments set to post revenue growth for the quarter, thanks to the success of the App Store, ApplePay and AppleTV, to name a few."
This services arm will be a major growth driver for the next decade, the analyst added.
"Further updates regarding the release of the iPhone15 should lift investor optimism as the upgrade cycle swings into full force.
"Market consensus is for earnings of $1.20 on revenue of $81.5 billion. If revenue consensus is met, it would signify the third quarter of declining revenue for Apple."
