Notwithstanding mounting concerns that the Fed will keep interest rates higher for a longer period of time, stocks rose as tech profits spurred a surge in markets.
Last week saw an almost 3% increase in the S&P 500 (\GSPC) and a more than 4% increase in the Nasdaq Composite (^IXIC). The Dow Jones Industrial Average (^DJI) increased by less than 1% during this time.
The Fed meeting, the April jobs report, and the earnings releases from Big Tech heavyweights Amazon (AMZN) and Apple (AAPL) this coming week will test the level of market optimism recently.
There are also scheduled updates regarding job opportunities, manufacturing and service sector activity, and consumer confidence.
AMD (AMD), Coca-Cola (KO), Eli Lilly (LLY), McDonald’s (MCD), Novo Nordisk (NVO), Starbucks (SBUX), and Super Micro Computer (SMCI) are among the companies that have released their earnings.
On Wednesday, the Federal Open Market Committee is set to make its most recent decision about interest rate policy. Fed Chair Jerome Powell will then have a press conference with the media. The central bank is expected by markets to maintain stable interest rates.
Since the market has lowered its expectations for a rate cut, investors will be keenly watching how the Fed interprets recent hotter-than-expected inflation statistics.
Data on price hikes have exceeded expectations since Powell stated in public on April 16 that inflation was “taking longer than expected” to decline to the Fed’s 2% target. The Federal Reserve closely monitors the Personal Consumption Expenditures (PCE) index, which excludes the cost of food and energy. The index most recently increased 2.8% over the previous year in March, surpassing estimates of 2.7% and remaining stable from the yearly gain observed in February.
According to the CME FedWatch tool, after the print, investors were pricing in just a 33% possibility that the Fed would cut rates in July, down from an 83% chance one month before.
The Fed is committed to maintaining higher interest rates until it is satisfied that inflation is declining, so the state of the job market is still a top priority. Despite a higher interest rate environment, resilient data has economists optimistic that inflation can drop to 2% without the economy entering a recession.
Based on data from Bloomberg, it is anticipated that the US economy added 250,000 nonfarm payroll jobs in April, while the unemployment rate remained at 3.8%. The US economy created 303,000 new jobs in March, while the unemployment rate decreased to 3.8%.
Furthermore, most analysts do not anticipate any indications of weakness in the robust labor market narrative.
Thus far, the market’s response to Big Tech’s profits has been inconsistent. Investors were uneasy about Meta’s (META) intentions to spend extensively on artificial intelligence and its lower-than-expected revenue projection for the second quarter. After the social media behemoth’s earnings announcement, its stock dropped by over 10%.
The company’s stock shot up more than 10% on the announcement of a $70 billion share repurchase program, a cash dividend program of $0.20 per share, and earnings results that exceeded projections, making Alphabet (GOOG, GOOGL) the clear winner of the week. On Friday, the market value of the firm exceeded $2 trillion.
There are scheduled earnings reports from Apple and Amazon. As worries about a downturn in demand deepen, Apple’s shares are down more than 11% year to date going into its report. Amazon, however, is close to reaching an all-time high and has increased by more than 18% this year.
Beyond Big Tech, the S&P 500 will conclude its two busiest reporting periods this week. According to FactSet, the index is tracking for earnings per share growth of 3.5%, which is marginally higher than the 3.2% predicted before the start of earnings season, with 46% of the index having already reported for the quarter.
In general, companies that report higher-than-expected sales and earnings per share experience muted positive stock reactions, while those that report lower-than-expected results see greater negative market performance.
Profit margins are rising, which is a bright spot in the earnings reports so far. This quarter’s net profit margin for the S&P 500 is expected to be 11.5%, up from 11.2% the previous quarter and consistent with margins from a year earlier.
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 prior)
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); Employment cost index, first quarter (+1% expected, +0.9% prior); 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, year-over-year, 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 openings, March (8.72 million expected, 8.76million last month); S&P Global US Manufacturing PMI, April final (49.9 expected, 49.9 previously); ISM Manufacturing, April (50.1expected, 50.3 previously); ISM prices paid, April (55.8 previously); Construction spending month-over-month, 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: Challenger jobs cuts, year-over-year, April (+0.7% previously) Unit labor costs, first quarter (+2% expected, +0.4% previously); Nonfarm productivity, first quarter (+1.5%% expected, +3.2% previously); Weekly initial jobless claims (217,00 previously); Factory orders, March (+1.6% expected, +1.4% previously); Durable goods orders, March final (2.6% previously)
Friday
Earnings: fuboTV (FUBO), Hershey (HSY)
Economic news: Nonfarm payrolls, April (+250,000 expected, +303,000 previously); Unemployment Rate, April (3.8% expected, 3.8% previously); Average hourly earnings, month-over-month, April (+0.3% expected, +0.3% previously); Average hourly earnings, year-over-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)
Shayne Heffernan
