Earnings bolster US stocks, report looms
A strong earnings season and blockbuster reports from tech industry titans fueled a US stock market rebound from the first real swoon of 2024. This week’s inflation data could determine whether the good vibes continue.
The benchmark S&P 500 index is up over 9 per cent for the year, up near its latemarch record high, following a 5 per cent pullback that occurred last month.
The bounce has overlapped with a stronger-than-expected first-quarter reporting season for US companies. With well over 80 per cent of the S&P 500 having reported results, companies are on track to have increased earnings by 7.8 per cent, well ahead of the April expectation of 5.1 per cent growth, according to LSEG IBES.
Still, some investors worry the rally could stall without evidence that inflation is cooling again. While Fed Chairman Jerome Powell has reassured markets the central bank is unlikely to raise rates anytime soon, months of strong inflation have led to concerns that policymakers will not cut them this year.
Strong earnings have “got investors feeling more comfortable about being in this market," said Art Hogan, chief market strategist at B Riley Wealth. However, “the trajectory of inflation is always going to be important to us while we're in a cycle where we expect the next thing for the Fed to do is to cut rates."
Inflation reports have preceded market dividend as the Google parent topped estipivots in recent years, as the Fed has mates for sales and profit, while Apple's revenue ramped up interest rates to cool consumer fell less than feared as the iphone maker inflation from four-decade highs hit in 2022. unveiled a US$110 billion stock buyback Most recently, an April 10 release showing plan, the largest ever such authorization from a third-straight month of stronger-than-exa US company. pected inflation was followed by a roughly "There's been enough in terms of upside two-week decline in stocks as it spurred surprise that's helped to support the markets," fears the Fed could raise rates this year. said Yung-yu Ma, chief investment
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Economists polled by Reuters expect at BMO Wealth Management. "There May 15 consumer price index report will was concern that it could even be somewhere show an increase of 0.3 per cent in April between a modest and weak earnings season, from the previous month. Investors are also which didn't happen." awaiting data on retail sales this week, as With Nvidia the last of the group to rewell as earnings from Walmart, Home Depot port, on May 22, Magnificent Seven quarterly and Cisco. earnings are on track to jump 49.4 per
If the CPI report comes in hotter, it's cent, according to Tajinder Dhillon, senior going to likely price out any rate cuts for research analyst at LSEG.
2024,” said Matthew Miskin, co-chief investment Analysts are also becoming more upbeat strategist with John Hancock Investment about megacap financial prospects. Estimates Management. “You may actually for 2024 earnings for the six megacap have to start talking about policy that's more companies that have reported have risen restrictive if (inflation) is too hot relative to by 2.1 per cent on average over the past 30 expectations." days, versus only a 0.1 per cent rise in 2024 earnings estimates for the S&P 500 overall, according to Jessica Rabe, co-founder of Datatrek Research.
Still, investors have punished companies whose results missed expectations. These shares have underperformed the market by 3.2 per cent this quarter, compared to 1.2 per cent the previous quarter, according to a report from Manish Kabra, chief US equity strategist at Societe Generale.
Boost from earnings
For now, bullish investors have gained confidence from a solid earnings season. Standouts included generally strong reports from most of the so-called Magnificent Seven tech and growth giants whose shares helped propel the market higher last year and continue to have a huge weighting in the S&P 500.
Among these, Alphabet announced its first