Market Commentary

For the week ending 4/26/2024

 

Stock indices snapped a three-week losing streak as corporate earnings came in better than expected and boosted sentiment.  Results in the tech sector seemed to outweigh broader concerns about inflation, interest rates and a significant slowdown in Gross Domestic Product.  As of the end of the week, analysts polled by FactSet were expecting overall earnings for the S&P 500 to have increased 3.7% in the first quarter relative to the year before, with both the number of companies beating estimates and also the size of those beats coming in well above the 10-year averages.

The tech sector, in particular, performed best as shown by the relative outperformance of the NASDAQ Composite.  Google surged late in the week following an earnings beat along with the initiation of the company’s first-ever dividend payment.  Facebook, although it reported solid revenues and profits, fell sharply after CEO Mark Zuckerberg announced plans to continue heavy spending on Artificial Intelligence and other new technologies that won’t pay off for many years.  This contrasts with AI heavyweights such as Microsoft, Google, and NVIDIA which are seeing profits increase immediately as they bring AI products and services to market.

The week started off on a strong note as bargain hunters came in to buy the dip of the last three weeks.  The buying continued on Tuesday even though a gauge of U.S. manufacturing activity fell back into contraction territory in April.  That same gauge of services sector activity also missed expectations, at 50.9 versus 52.0.  The buying interest seemed to come from investors interpreting the results as disinflationary and the reason the Fed could cut interest rates in the coming months.  In other words, “Bad news is good news.”

Thursday’s bad economic news appeared to be treated as bad news, however. The Commerce Department’s advance estimate of U.S. GDP showed the economy expanding at an annualized rate of just 1.6% in the first quarter, below consensus estimates of around 2.2% and the slowest pace of growth in nearly two years. This, together with inflation data released on Thursday and Friday that came in a little worse than hoped, raised concerns among economists and investors that the U.S. might even be in danger of falling into “stagflation,” an episode last experienced in the 1970s that featured rising prices alongside flagging growth.  Tech earnings late in the week, however, jolted investors out of their doldrums and the indices rallied to snap, as we mentioned, a three-week losing streak.

Earnings season rises and falls like a Bell Curve, and last week marked the mid-point in the cycle when the biggest portion of companies report in a single week.  From here, the number of reports begins to dwindle, although there are still plenty of large and important companies still to be heard from.  Coming up this week will be Amazon, Apple, Coca-Cola, McDonald’s, Starbucks, Pfizer, and Mastercard among others.  All evidence says that these companies will continue the winning streak in corporate earnings and bolster the market in the face of slumping economic data.

For the week, the Dow Jones rose 254 points to 38,240 (0.7%), the NASDAQ was up 646 points to 15,928 (4.2%), and the S&P 500 added 133 points to 5,100 (2.7%).

Oil rose $1.00 to $84.00/bbl.    Gold fell $67 to $2,347/oz.

And the yield on the 10 yr. Treasury ticked up 0.1 to 4.7%.

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