Earnings Help Equities Snap Three-Week Losing Streak

Earnings Help Equities Snap Three-Week Losing Streak

Equity markets posted their first weekly gains of April last week amid a busy earnings and economic data schedule. Global equities (represented by the MSCI All Country World Index) were up 2.62%, and domestic stocks (represented by the S&P 500 Index) were up 2.68%.

S&P 500 Earnings

With about a third of the S&P 500 reporting earnings including four of the Magnificent Seven companies just last week, investors took focus on these reports. Now with about 46% of S&P 500 companies reporting quarterly results, 77% have beaten earnings expectations according to FactSet. FactSet also reported that the overall expectation for S&P 500 earnings increased to 3.5%, up from the week prior’s projection of a 0.5% growth rate, and earnings surprises and the magnitude of earnings surprises are above their 10-year averages.

Inflation and Rate Cuts

The Commerce Department’s advance estimate of first-quarter GDP growth came in at an annualized rate of 1.6%, missing consensus expectations and slowing from the previous quarter’s 3.4% pace. A slowdown in government spending and a widening trade deficit were the major detractors of growth, but consumer spending also slowed from 2.2% to 1.7%.

Personal Consumption Expenditures

The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, was released Friday for the month of March. The core index, excluding food and energy, rose 0.3% on a month-over-month basis and an annualized rate of 2.8%, both remaining unchanged from February. Similarly to the earlier CPI release, progress towards the Fed’s 2% long-term inflation target looks to have stalled for the month.

Treasury Rates

Treasury rates continued to rise for the fourth straight week as markets re-evaluate the Fed’s path forward. The 2-year Treasury yield breached the 5.00% mark last week for the first time since November, and the 10-year yield rose slightly to 4.67% from 4.61% at the end of the previous week.

Looking Forward

This week is another busy schedule of quarterly earnings, the Federal Reserve’s policy meeting, and a labor market update for the month of April. The Fed is widely expected to keep rates steady for the sixth consecutive meeting at a range of 5.25-5.50%. April’s labor market update follows a strong month of March where a higher-than-expected 303,000 jobs were added to the economy and a slight tick lower in the unemployment rate from 3.9% to 3.8%.

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.