Stocks rebounded as technology sector profits sparked a market rally despite growing fears that the Fed will keep interest rates higher for longer.
The Nasdaq Composite (^IXIC) rose more than 4% last week, while the S&P 500 (^GSPC) jumped almost 3%. Meanwhile, the Dow Jones Industrial Average (^DJI) rose less than 1%.
In the week ahead, a Fed meeting, the April jobs report and earnings from big tech stalwarts Apple (AAPL) and Amazon (AMZN) will test markets’ recent optimism .
Updates on job openings, activity in the service and manufacturing sectors and consumer confidence are also on the calendar.
Companies reporting profits include AMD (AMD), Coca-Cola (KO), Eli Lilly (LLY), McDonald’s (MCD), Novo Nordisk (NVO), Starbucks (SBUX), and Super Micro Computer (SMCI).
An update from the Fed
The Federal Open Market Committee’s final interest rate policy decision will likely be made Wednesday, followed by a news conference with Fed Chairman Jerome Powell. Most markets expect the central bank to keep rates stable.
Investors will be paying attention to how the Fed interprets recent higher-than-expected inflation data, as the market has lowered its rate cut expectations.
Learn more: What the Fed’s rate decision means for bank accounts, CDs, loans and credit cards
“A new round of elevated inflation data is likely to lead to a more hawkish message at the May FOMC meeting,” Deutsche Bank chief U.S. economist Matthew Luzzetti wrote in a research note on Friday. . “While we expect the Committee to maintain its easing orientation, we also anticipate that the statement and press conference will echo Chairman Powell’s view that stronger inflation numbers suggest that “It will take longer to gain confidence in disinflation.”
Since Powell publicly stated on April 16 that inflation was taking “longer than expected” to fall to the Fed’s 2% target, data on price increases has exceeded expectations. More recently, the core personal consumption expenditures (PCE) index, which does not take into account the cost of food and energy and is closely monitored by the Federal Reserve, rose 2.8%. from a year earlier in March, above estimates of 2.7% and unchanged from a year earlier. annual increase observed in February.
After the release, investors were pricing in just a 33% chance the Fed would cut rates in July, down from 83% a month ago, according to the CME FedWatch tool.
A look at the job market
While the Fed pledges to keep rates higher until it is confident inflation is falling, the focus remains on the health of the labor market. Resilient data gives economists hope that inflation can fall to 2% without the economy falling into recession, despite a higher interest rate environment.
The April jobs report is expected to show that 250,000 nonfarm payroll jobs were added to the U.S. economy, with unemployment steady at 3.8%, according to Bloomberg data. In March, the U.S. economy added 303,000 jobs while the unemployment rate fell to 3.8%.
And, overall, economists don’t expect the strength of the labor market to show any signs of cracking.
“We do not expect a slowdown in recent labor market dynamics,” wrote BofA US economist Michael Gapen in a weekly note to clients on Friday.
Big Tech profits continue
Market reaction to Big Tech’s earnings has so far been mixed. Meta’s (META) plans to invest heavily in artificial intelligence, along with its weaker-than-expected second-quarter revenue guidance, have given investors pause. The social media giant’s stock fell more than 10% following its earnings release.
Alphabet (GOOG, GOOGL) turned out to be the winner of the week: its stock jumped more than 10% after the company announced a cash dividend program of $0.20 per share, the approval of a $70 billion share buyback program and results that beat estimates. . Its market capitalization surpassed $2 trillion on Friday.
Ted Mortonson, sector strategist at Baird’s technology office, said one of the main reasons behind the divergent moves of the two big tech stocks was a “positioning play.” Meta stock has soared over the past year, while Alphabet hasn’t outperformed as much.
That narrative will be tested again this week, when Apple and Amazon are expected to report their results. Apple enters its report with shares down more than 11% this year, amid growing concerns about slowing demand. Meanwhile, Amazon is up more than 18% this year and nearing an all-time high.
Earnings Dashboard
Beyond Big Tech, this week will cap the busiest two reporting weeks for the S&P 500. With 46% of the index having already reported for the quarter, the index expects earnings growth per share of 3.5%, slightly higher than 3.2. % expected before the start of earnings season, according to FactSet.
Overall, companies that have outperformed their earnings per share and revenue are seeing moderate positive results. stock market reactions, while companies that fail experience more negative stock market performance than usual.
Strategists told Yahoo Finance that it appears companies are struggling to impress investors and generate strong stock market reactions after a massive market rally earlier this year.
“You don’t just need momentum (on earnings and revenue estimates) and sustain (on forecasts), you need momentum, growth and confidence in the very long-term trajectory of these companies,” Citi strategist Drew Pettit told Yahoo Finance. .
There has, however, been a silver lining in the earnings reports so far: profit margins are increasing. The S&P 500 expects a net profit margin of 11.5% this quarter, higher than the 11.2% seen last quarter and in line with margins a year ago.
As Keith Lerner, co-CIO of Truist, noted in the Yahoo Finance Chartbook last January, a key question for investors in 2024 has been whether or not companies will be able to preserve their margins in an environment of persistent inflation and high interest rates. For now, the answer appears to be yes.
Economic calendar
Monday
Earnings: Avis Budget Group (CAR), Chegg (CHGG), Domino’s Pizza (DPZ), Logitech (LOGI), Paramount (PARA), Philips (PHG), SoFi Technologies (SOFI)
Economic news: Dallas Fed manufacturing activity, April (-11.3 expected, -14.4 previously)
Tuesday
Earnings: Amazon (AMZN), AMD (AMD), Caesars Entertainment (CZR), Coca-Cola (KO), Eli Lilly (LLY), McDonald’s (MCD), Oatly (OTLY), Pinterest (PINS), PayPal (PYPL), Riot Platform (RIOT), Super Micro Computer (SMCI), Sirus XM (SIRI), Starbucks (SBUX), 3M (MMM)
Economic news: Conference Board Consumer Confidence, April (104.1 expected, 104.7 previously); Labor cost index, first quarter (+1% expected, +0.9% previously); S&P CoreLogic Case-Shiller, 20-city Composite Home Price Index, month-over-month, February (+0.1% expected, +0.14% previously); S&P CoreLogic Case-Shiller 20-City Composite Home Price Index, YoY, February (+6.59% previously)
Wednesday
Earnings: Carvana (CVNA), CVS (CVS), Devon Energy (DVN), Estée Lauder (EL), Etsy (ETSY), Kraft Heinz (KHC), Marriott International (MAR), Mastercard (MA), Norwegian Cruise Line (NCL) , Paycom (PAYC), Pfizer (PFE), Qualcomm (QCOM), Wing Stop (WING)
Economic news: JOLTS job offers, March (8.72 million expected, 8.76 million last month); S&P US Global Manufacturing PMI, April Final (49.9 expected, 49.9 previously); ISM Manufacturing, April (50.1 expected, 50.3 previously); ISM prices paid, April (previously 55.8); Month-to-Month Construction Spending, Mach (+0.3% expected, -0.3% previously): Federal Open Market Committee rate decision (no change expected)
THURSDAY
Earnings: Apple (AAPL), Block (SQ), Booking Holdings (BKNG), Coinbase (COIN), Cigna (CI), ConocoPhillips (COP), DraftKings (DKNG), Expedia (EXPE), Moderna (MRNA), Novo Nordisk (NVO), Peloton (PTON), Wayfair (W)
Economic news: Job cuts at Challenger, year-on-year, April (+0.7% previously) Unit labor costs, first quarter (+2% expected, +0.4% previously); Non-agricultural productivity, first quarter (+1.5%% expected, +3.2% previously); Weekly Initial Unemployment Claims (previously 217.00); Orders to factories, March (+1.6% expected, +1.4% previously); Durable goods orders, end of March (2.6% previously)
Friday
Earnings: fuboTV (FUBO), Hershey (HSY)
Economic news: Non-agricultural jobs, April (+250,000 expected, +303,000 previously); Unemployment rate, April (3.8% expected, 3.8% previously); Average hourly wage, month over month, April (+0.3% expected, +0.3% previously); Average hourly wage, over one year, April (+4% expected, +4.1% previously); Average weekly hours worked, April (34.4 expected, 34.4 previously); Labor force participation rate, April (62.7% previously) S&P Global US Services PMI, April final (50.9 expected, 50.9 previously); ISM Services PMI, April (52 expected, 51.4 previously)
News Source : finance.yahoo.com
Gn bussni
