Stocks rose again as technology earnings sparked a rally in markets despite growing concerns 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) rose nearly 3%. Meanwhile, the Dow Jones Industrial Average (^DJI) rose less than 1%.
In the coming week, a Fed meeting, the April jobs report and earnings from Big Tech stalwarts Apple ( AAPL ) and Amazon ( AMZN ) will test the markets’ recent optimism.
Updates on job openings, activity in the service and manufacturing sectors and consumer confidence are also on the calendar.
Companies reporting earnings 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 latest decision on interest rate policy by the Federal Open Market Committee is likely on Wednesday, followed by a press conference with Fed Chairman Jerome Powell. Markets generally expect the central bank to keep interest rates stable.
Investors will be listening closely for how the Fed interprets the latest warmer-than-expected inflation data, as the market has downgraded its expectations for rate cuts.
Read more: What the Fed rate decision means for bank accounts, CDs, loans and credit cards
“A second round of elevated inflation data is likely to lead to a more hawkish message at the May FOMC meeting,” Deutsche Bank’s chief U.S. economist Matthew Luzzetti wrote in a research note on Friday. “While we expect the Committee to maintain an easing bias, we also expect the statement and press conference to reiterate Chairman Powell’s view that firmer inflationary pressures suggest it will take longer to gain confidence in disinflation.”
Since Powell publicly said on April 16 that inflation was taking “longer than expected” to fall to the Fed’s 2% target, inflation data has come in above expectations. Most recently, the core personal consumption expenditures (PCE) index, which strips out food and energy costs and is closely watched by the Federal Reserve, rose 2.8% from a year earlier in March, above estimates for 2.7% and unchanged from a year earlier increase seen in February.
After the print, investors priced in just a 33% chance the Fed will cut interest rates in July, down from an 83% chance a month ago, according to the CME FedWatch tool.
A look at the labor market
With the Fed committed to keeping interest rates higher until it feels confident that inflation is coming down, the focus remains on the health of the labor market. Resilient data has economists hoping inflation can ease to 2% without the economy slipping 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 the unemployment rate holding steady at 3.8%, according to data from Bloomberg. In March, the US economy added 303,000 jobs, while the unemployment rate fell to 3.8%.
And by and large, economists do not expect there to be signs of cracks in the strong labor market history.
“We do not expect the recent momentum in the labor market to slow,” BofA U.S. economist Michael Gapen wrote in a weekly note to clients on Friday.
Big Tech earnings roll on
Market reaction to Big Tech earnings has so far been a mixed bag. Meta’s ( META ) plans to spend big on artificial intelligence, along with its softer-than-expected second-quarter revenue guidance, gave investors pause. The social media giant’s stock fell more than 10% after the earnings announcement.
Alphabet ( GOOG , GOOGL ) turned out to be the week’s winner: Its stock jumped more than 10% after the company announced a cash dividend program of $0.20 per share. . Its market capitalization topped $2 trillion on Friday.
Baird technology counter sector strategist Ted Mortonson reasoned that a big reason behind the divergent moves in the two Big Tech stocks was a “positioning play.” Meta stock had rallied over the past year, while Alphabet didn’t do nearly as well.
That narrative will be put to the test again this week, when Apple and Amazon are due to report earnings. Apple enters its report with shares down more than 11% this year amid growing concerns about a slowdown in demand. Meanwhile, Amazon is up more than 18% this year and is hovering near an all-time high.
Earnings scorecard
In addition to Big Tech, this week will wrap up the two busiest weeks of reporting for the S&P 500. With 46% of the index already reported for the quarter, the index tracks earnings per share. stock growth of 3.5%, slightly above the 3.2% expected before the start of earnings season, per fact set.
In general, companies that look at earnings per share and turnover, mutedly positive stock reactions, while companies that miss experience more negative stock performance than usual.
Strategists have told Yahoo Finance that companies appear to be struggling to impress investors and drive big stock reactions after a massive market rally to start the year.
“You don’t just need a beat (on earnings and revenue estimates) and hold (on guidance), you need a beat and raise and confidence in the very long-term trajectory of these companies,” Citi strategist Drew Pettit told Yahoo Finance .
Still, earnings reports have been stiff so far: profit margins are on the rise. The S&P 500 is betting on a net profit margin of 11.5% this quarter, above 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 Chartbook back in January, a key question for investors in 2024 has been whether companies will be able to maintain margins amid sticky inflation and high interest rates. For now, the answer appears to be yes.
Financial calendar
Monday
Earnings: Avis Budget Group (CAR), Chegg (CHGG), Domino’s Pizza (DPZ), Logitech (LOGI), Paramount (PARA), Philips (PHG), SoFi Technologies (SOFI)
Financial news: Dallas Fed manufacturing activity, April (-11.3 expected, -14.4 previous)
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)
Financial news: Conference Board Consumer Confidence, April (104.1 expected, 104.7 previously); Employment Cost Index, Q1 (+1% expected, +0.9% earlier); 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)
Financial news: JOLTS job openings, March (8.72 million expected, 8.76 million last month); S&P Global US Manufacturing PMI, final April (49.9 expected, 49.9 previously); ISM Manufacturing, April (50.1 expected, 50.3 previously); ISM prices paid, April (55.8 previously); Construction spending month-over-month, Mach (+0.3% expected, -0.3% previous): 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)
Financial news: Challenger job cuts, year-over-year, April (+0.7% previously) Unit labor costs, first quarter (+2% expected, +0.4% previously); Non-farm productivity, first quarter (+1.5%% expected, +3.2% previously); Weekly First Unemployment Claims (previously 217.00); Factory orders, March (+1.6% expected, +1.4% earlier); Durable goods orders, final March (2.6% previously)
Friday
Earnings: fuboTV (FUBO), Hershey (HSY)
Financial 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, April (62.7% previous) S&P Global US Services PMI, final April (50.9 expected, 50.9 previous); ISM Services PMI, April (52 expected, 51.4 previously)
