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Equities Rise to End April on Positive Earnings
Equity markets inched higher as big names such as Meta and Microsoft beat earnings estimates to help propel the major indices. Global equities (represented by the MSCI All Country World Index) were up 0.44%, and domestic stocks (represented by the S&P 500 Index) were up 0.89%. While the S&P 500 was largely tame in April, last week’s performance helped drive the month’s return to 1.56%.
The initial estimate of US first quarter GDP released last week showed continued growth but at a slower pace. While expectations were around 2%, GDP grew 1.1% for the first quarter from the prior year, down from last quarter’s growth rate of 2.6%.
A new monthly reading of the Fed’s preferred gauge for inflation, the Personal Consumption Expenditures (PCE) Price Index, was released Friday showing continued taming of inflation. The PCE index rose at an annual rate of 4.2% in March, dropping from 5.1% the previous month. However, core PCE (excluding food and energy prices) rose 4.6% year-over-year, down from February’s 4.7% reading and still above the Fed’s 2% long-term target.
With now over 50% of S&P 500 companies reporting first quarter results, 79% have beaten earnings estimates according to FactSet. Microsoft and Meta (Facebook’s parent company) were among the names that had positive surprises on earnings which helped lead to over 7.5% and 12.8% gains last week respectively. However, even with these positive beats, earnings are expected to fall by 3.7% overall with this being the second consecutive quarter with declining earnings.
The week ahead includes the Fed’s next interest rate decision, labor market updates, and manufacturing and services sector data. The US Fed holds its two-day FOMC meeting with their next move highly expected to be an additional 0.25% increase. This would bring the Fed Funds target range to 5.00-5.25%. According to the CME FedWatch Tool, markets are currently expecting this to be the last interest rate hike and that the Fed holds rates steady for the following few meetings. The Bureau of Labor Statistics will give us a fresh unemployment rate figure for April as the rate has stayed historically low around 3.5%. The Institute for Supply Management (ISM) will report their manufacturing and services indexes this week which will give insight on activity within both areas of the economy.
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.