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) increased by almost 3%. Meanwhile, the Dow Jones Industrial Average (^DJI) increased by less than 1%.
In the week ahead, a Fed meeting, the April jobs report and earnings from big tech companies support Apple (AAPL) and Amazon (AMZN) will test recent market 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 (EAST), Eli Lilly (THERE IS), McDonalds (MCD), Novo Nordisk (NGO), Starbucks (SEX) and Super Micro Computer (SMCI).
An update from the Fed
The latest interest rate policy decision from the Federal Open Market Committee is expected 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 inflation higher than expected data as the market lowered its expectations for rate cuts.
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 declared on April 16 that inflation was rising, “longer than expected” to meet the Fed’s 2% target, data on price increases 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 expected only a 33% chance that 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 American economy created 303,000 jobs while the unemployment rate fell to 3.8%.
And, overall, economists don’t expect there to be any signs of cracks in the system. a solid situation on the labor market.
“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. The meta (META) plans to invest heavily in artificial intelligence, alongside its lower-than-expected second-quarter revenue guidance, made investors think. The social media giant’s stock fell more than 10% following its earnings release.
Alphabet (GOOG, GOOGLE) 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, approval of a buyback program of shares of 70 billion dollars and results above estimates. The market capitalization of the company 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.
This narrative will be tested again in the coming 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 end the two busiest reporting weeks for the S&P 500. While 46% of the index has already reported for the quarter, the index is tracking earnings per share growth of 3.5%, slightly above the 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 the companies that are missing are we are seeing more negative stock market performances than usual.
Strategists told Yahoo Finance that it appears companies are struggling to impress investors and generate big stock market reactions after a massive market rally to start the 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 Truist co-CIO Keith Lerner noted in the Yahoo Finance Chart Book Last January, a key question for investors in 2024 was whether or not companies would be able to preserve margins amid persistent inflation and high interest rates. For now, the answer appears to be yes.
Economic calendar
Monday
Earnings: Budget Review Group (CAR), Chegg (CHGG), Domino’s Pizza (DPZ), Logitech (THE WINDOWS), Paramount (FOR), Philips (PHG), SoFi Technologies (SOFI)
Economic news: Dallas Fed manufacturing activity, April (-11.3 expected, -14.4 previously)
Tuesday
Earnings: Amazon (AMZN), AMD (AMD), Césars Entertainment (CZR), Coca-Cola (EAST), Eli Lilly (THERE IS), McDonalds (MCD), Oatly (FORM), Pinterest (PIN), PayPal (PYPL), Anti-riot platform (RIOT), Super Micro Computer (SMCI), SiriusXM (SIRI), Starbucks (SEX), 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: Caravan (CVNA), CVS (CVS), Devon Energy (DVN), Estee Lauder (HE), Etsy (ETSY), Kraft Heinz (KHC), Marriott International (MAR), Mastercard (MY), 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 (S.Q.), Reservation of assets (BKNG), Coinbase (PIECE OF MONEY), Cigna (THIS), ConocoPhillips (COP), DraftKings (DKNG), Expedia (EXPÉ), Modern (mRNA), Novo Nordisk (NGO), Platoon (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)
