What to know this week

Stocks rallied as tech profits fueled 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) soared nearly 3%. Meanwhile, the Dow Jones Industrial Average (^DJI) rose less than 1%.

Next week, a Fed meeting, the April jobs report and earnings from big tech companies Apple (AAPL) and Amazon (AMZN) will test the recent optimism in the markets.

Updates on job openings, activity in the services 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 Federal Open Market Committee’s latest interest rate policy decision will likely be on Wednesday, followed by a news conference with Fed Chairman Jerome Powell. Markets widely expect the central bank to keep rates stable.

Investors will be paying close attention to how the Fed is interpreting the recent hotter-than-expected inflation data, as the market has scaled back its rate cut expectations.

See more information: What the Fed’s Rate Decision Means for Bank Accounts, CDs, Loans and Credit Cards

“Another round of elevated inflation data will likely 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 an easing trend, we also anticipate that the statement and press conference will echo Chairman Powell’s view that firmer inflation prints suggest it will take longer to gain confidence about disinflation.”

Since Powell said publicly on April 16 that inflation was taking “longer than expected” to fall to the Fed’s 2% target, data on price increases have been above expectations. More recently, the core Personal Consumption Expenditures (PCE) index, which excludes 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 for 2.7% and unchanged from the previous year. annual increase observed in February.

At press time, investors were forecasting just a 33% chance that the Fed would cut rates in July, down from the previous month’s 83% chance. according to the CME FedWatch tool.

A look at the job market

With the Fed committed to keeping rates higher until it feels confident that inflation will decline, there is a continued focus on the health of the job market. Resilient data has economists hopeful that inflation can fall to 2% without the economy going into recession, despite a higher interest rate environment.

The story continues

The April jobs report is expected to show that 250,000 nonfarm jobs were added to the U.S. economy, with unemployment holding steady at 3.8%, according to Bloomberg data. In March, the US economy added 303,000 jobs while the unemployment rate fell to 3.8%.

And for the most part, economists don’t expect there to be any signs of cracks in the labor market’s strong story.

“We do not expect the recent momentum in the labor market to abate,” BofA US economist Michael Gapen wrote in a weekly note to clients on Friday.

Big Tech Earnings Soar

The market reaction to Big Tech’s earnings has been mixed so far. Meta’s (META) plans to spend heavily on artificial intelligence, coupled with its softer-than-expected Q2 revenue guidance, gave investors pause. Shares of the social media giant fell more than 10% after the release of its earnings.

Alphabet (GOOG, GOOGL) proved to be the week’s winner: its shares rose more than 10% after the company announced a $0.20 per share cash dividend program, approval for a US$70 billion and profit results that exceeded estimates. Its market value surpassed $2 trillion on Friday.

Baird tech desk sector strategist Ted Mortonson argued that a big reason behind the divergent moves in the two Big Tech stocks was a “positioning game.” Meta shares have soared over the past year, while Alphabet hasn’t outperformed as much.

That narrative will be put to the test once again this week when Apple and Amazon are expected to report earnings. Apple presents its report with shares falling more than 11% this year amid growing concerns about a slowdown in demand. Meanwhile, Amazon is up more than 18% this year and is close to an all-time high.

Earnings Overview

Aside from Big Tech, this week will round out the busiest two weeks of reporting for the S&P 500. With 46% of the index having already reported for the quarter, the index is tracking EPS growth of 3.5%, slightly up of 3.2. % expected before earnings season begins, per FactSet.

In general, companies that have outperformed earnings per share and revenue are experiencing moderate positive results stock reactions, while companies that fail are seeing more negative stock performance than normal.

Strategists told Yahoo Finance that it appears companies are struggling to impress investors and generate big stock reactions after a big market rally earlier in the year.

“You don’t just need a beat [on earnings and revenue estimates] and hold [on guidance]you need momentum and lift and confidence in the long-term trajectory of these companies,” Citi strategist Drew Pettit told Yahoo Finance.

Still, so far there has been a silver lining in the earnings reports: profit margins are increasing. The S&P 500 is on track for a net profit margin of 11.5% this quarter, above the 11.2% seen last quarter and in line with margins from a year ago.

As Truist co-CIO Keith Lerner noted in the Yahoo Finance Chartbook in January, a key question for investors in 2024 has been whether or not companies will be able to preserve margins in a context of sticky 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 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)

Economic news: Conference Board Consumer Confidence, April (104.1 expected, 104.7 previously); Employment Cost Index, Q1 (+1% expected, +0.9% previous); 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, 8.76 million last month); S&P Global US Manufacturing PMI, end of April (49.9 expected, 49.9 previously); ISM Manufacturing, April (50.1 expected, 50.3 previously); ISM prices paid, April (55.8 previously); Month-over-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: Challenging job cuts, year-over-year, April (+0.7% previously) Unit labor costs, Q1 (+2% expected, +0.4% previously); Non-agricultural productivity, first quarter (+1.5%% expected, +3.2% previously); Initial weekly unemployment benefit claims (217.00 previously); Factory orders, March (+1.6% expected, +1.4% previously); Durable goods orders, end of March (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, end of April (50.9 expected, 50.9 previously); ISM Services PMI, April (52 expected, 51.4 previously)