Daily market snapshot

• Stocks struggle for direction as yields rise - After a strong rebound over the previous two days led by tech, equity markets finished mixed today. The Nasdaq was helped by an 11% jump in the shares of Tesla after the company reported first-quarter results that were not as bad as feared*. The company also announced a renewed push to accelerate the launch of less expensive cars to improve growth. However, small-caps and the Dow declined, as higher bond yields offset optimism on corporate profits. The defensive sectors outperformed, while the industrial sector lagged, as shares of Boeing declined after Moody's slashed the company's credit rating.  Elsewhere, WTI oil pulled back below $83, but remains up more than 15% year-to-date*.
• Earnings take center stage - This week is the busiest of the earnings season, with about one-third of the S&P 500 companies reporting earnings, representing 40% of the index's market capitalization*. So far results have been encouraging, with 80% of the companies surprising to the upside, exceeding earnings expectations by 8.5%*. For the full year, earnings estimates are holding steady, indicating that earnings are on track to growth 10.3%, supporting the bull market in stocks*. The spotlight this week is on the “Magnificent Seven” group of mega-cap tech names**. Tesla's results and strategic update are lifting the group today, with the focus then shifting to Meta's results that are coming out after the market close, followed by Microsoft and Alphabet on Thursday. Profits for the Magnificent Seven are forecast to rise 38% in the first quarter from a year ago, handsomely exceeding the S&P 500’s 3% expected earnings growth*. However, that outperformance and gap with the rest of the market will likely start to narrow in the back half of the year, which supports our view that the rally will broaden to other companies and sectors that lagged last year.
• GDP and inflation data to provide clues for rate outlook - Investors will be parsing through the U.S. GDP growth estimate on Thursday and inflation data on Friday, with the fresh readings viewed through the lens of what it means for Fed policy. Resilient growth and the slow progress in inflation have pushed back the timeline of when interest rates may be cut by the Fed, with markets now anticipating less than two rate cuts for the year*. The first estimate of first-quarter GDP is expected to show that the U.S. economy grew at a 2.5% annualized pace, a modest slowdown from the 3.4% pace seen in the fourth quarter*. On the inflation front, the core personal consumption expenditures price index (PCE), which is the Fed's preferred measure of inflation, is expected to tick lower to 2.7% in March from a year ago*. That pace of inflation is still elevated, but the trend remains lower, and, in our view, conditions will fall into place for the Fed to gain confidence to cut rates, maybe not in the summer but possibly in September.

Angelo Kourkafas, CFA
Investment Strategist

^{*FactSet.
**Magnificent 7 represented by Apple, Amazon, Alphabet, Microsoft, Tesla, NVIDIA and Meta Platforms.}

• Stocks rise in response to soft U.S. economic data: Equity markets finished higher Tuesday, with corporate earnings and economic growth center stage for markets. Sector leadership was broad based with most sectors of the S&P 500 finishing higher led by communication services and technology.* Risk-on sentiment was evident in markets today with small-cap stocks outperforming and rising by over 1.7%.* Markets responded favorably to a softer-than-expected S&P Global Purchasing Managers' Index (PMI) reading, which signaled U.S. economic activity continued to expand in April but at a slower pace than the prior month.* While softer economic growth seems hardly like something to root for, markets are likely viewing this reading through the lens that softer economic growth could lead to lower inflation and rate cuts from the Fed. Treasury yields finished the day lower with the 10-year yield closing around 4.60% while the 2-year yield finished around 4.92%.* In the commodity space, oil prices finished the day higher, rising to just above $83 per barrel.
• Earnings in the driver's seat: Corporate earnings will be front and center for markets this week, with four members of the Magnificent 7*** scheduled to report. Tesla will kick things off for the group after market close today, followed by Meta, Alphabet and Microsoft later this week. Thus far, roughly 20% of the companies in the S&P 500 have reported first-quarter earnings, with estimates calling for roughly flat year-over-year growth for the first quarter.*  Expectations are highest for the information technology, communication services, consumer discretionary and utilities sectors, which are all expected to see double-digit earnings growth in the first quarter.* Looking ahead to the full year, expectations are calling for just over 10% year-over-year earnings growth for the S&P 500 compared with roughly flat growth in 2023.* In our view, healthy corporate profit growth will be a necessary condition for sustained equity-market strength the remainder of the year.
• Global growth showing signs of strengthening: The preliminary reading for the April S&P Global PMI signaled that economic growth is firming across the globe. The eurozone composite PMI reading of 51.4 (a reading above 50 signals expansion) was the highest reading in 11 months, driven by strength in the services sector of the economy.* The U.K. reading was strong as well, with the composite PMI ticking up to 54, also an 11-month high, while the Japan composite PMI reading of 52.6 was the highest since August 2023.** Looking ahead, our view is that U.S. economic growth will likely continue to lead in 2024. However, we believe the worst is likely behind international economies from a growth standpoint. Additionally, developed international stocks trade at a large discount to U.S. stocks and offer attractive dividend yields, which we believe justifies a neutral allocation to developed international stocks as part of a well-diversified portfolio.

Brock Weimer, CFA
Associate Analyst 

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**S&P Capital IQ Pro}

^{***Magnificent 7 represented by Apple, Amazon, Alphabet, Microsoft, Tesla, NVIDIA and Meta Platforms.} 

• Stocks gain ground to kick off the week – After a tough week in which the S&P 500 shed 3%, equities found some footing on Monday, both in the U.S. as well as overseas, where European and Asian markets were higher. Bond yields were little changed, with the 10-year rate holding just above 4.6%, slightly below the recent high but notably higher over the past few weeks.  Gold and oil prices were lower to start the week, with the former likely backing off as risk appetite picked up today, while the latter responded to the lack of escalation in the Middle East conflict. The technology and financial services sectors were the largest gainers on Monday, reflecting a return of optimism, as last week's beaten-up areas regained some ground.*
• Earnings in focus – Earnings season is in full swing, with the spotlight poised to intensify in the days ahead, as Tesla, Alphabet (Google), Microsoft and Meta (Facebook) will announce quarterly results between Tuesday and Thursday. Expectations remain high for this mega-cap tech cohort, but with the Nasdaq off more than 5% last week, some dose of caution may be setting in ahead of these earnings releases. Despite an 8% pullback in the S&P 500 technology sector over the last month, it shouldn't be lost that this group is still up more than 3% on the year and 19% over the last six months. Meanwhile, the other standout group, the communication services sector, has gained 14% year-to-date and 23% since last October.* While earnings from the so-called Magnificent 7 group will be in focus, the broader earnings picture will, in our view, be a key driver (and we think, pillar of support) for market performance over the balance of 2024.
• The week ahead – It was a particularly quiet day on the economic-data calendar, but things will pick up significantly as we move through the week. We're somewhat in the void between employment and CPI inflation reports, and Fed officials are now in the blackout period for public commentary until the next rate announcement on May 1, but markets will process incoming data through the lens of implications for economic growth and Fed policy ahead. We'll get the latest PMI manufacturing and services surveys on Tuesday, followed by the first look at first-quarter GDP on Thursday. But the clear headliner for the week will come on Friday with the release of the March personal consumption expenditures (PCE) inflation data. While the consumer price index (CPI) report gets most of the attention, the core PCE measure is the Fed's preferred gauge of inflation. Thus, Friday's report will, in our view, be influential to the market's direction as we sit in the intersection between the sharp rally of the last several months and the pullback of the last several days. The PCE report is expected to show a slightly more favorable trend in inflation, which would be a welcome (if not necessary) sign given the last few CPI reports have painted a more uncomfortable picture in which the improvement in inflation has seemingly stalled.

Craig Fehr, CFA
Investment Strategy

^*FactSet 

• Markets weaker as geopolitical tensions remain in focus – Stocks finished broadly lower on Friday, led by declines in the technology sector, with the S&P losing 0.9% and the Nasdaq falling 2%. The Dow did manage to close in positive territory, thanks to a strong gain in shares of index member American Express. News of an Israeli retaliatory strike on Iran kept geopolitical uncertainties elevated heading into the weekend, with investor sentiment remaining in a "risk off" position that has emerged in recent weeks from the combination of the conflict in the Middle East and an increasing realization that uncooperative inflation trends will likely push back the Fed's timetable for rate cuts. Oil prices were little changed on the day and were down notably for the week, which we think indicates that the oil markets are already pricing in a fair degree of uncertainty as well as the prospects that idle supply could be brought online if Iranian production is impacted. Treasury bond yields were lower and gold prices rose, reflecting the defensive posture across financial markets.*
• Earnings season underway – First-quarter earnings announcements for the S&P 500 have begun, with Friday's earnings spotlight shining on results from Netflix, Procter & Gamble and American Express, each of which offered a fresh read-through for broader market trends. Netflix beat consensus expectations on the top and bottom lines, but forward guidance appears to have underwhelmed, which we think is an indication of the high bar of expectations in the technology and communication services sectors. These expectations have been reflected in the significant outperformance for those areas over the last year. P&G's and Amex's results provide a fresh look at the state of the consumer, with the former raising its earnings growth projections on a solid demand outlook while also indicating that higher prices are showing up in consumer buying habits. We expect overall earnings growth to set the pace for market performance over the course of 2024. Consensus expectations are calling for roughly 10% profit growth for the S&P 500 this year*, which we think is reasonable but will also require ongoing economic resilience.
• Perspective on market pullback – After a steady rally from October to the beginning of April, the stock market has shown its first signs of fatigue recently. The S&P 500 finished lower for the week, marking the third straight weekly loss, the first such streak in over five months. Volatility rarely feels comfortable, but perspective is useful here. The stock market is down just 5% from the all-time high. For context, equities have historically experienced two 5% dips per year, on average, so this bout of weakness is, in our view, normal. Moreover, after the more-than-25% rally over the last several months*, we think a breather is to be expected, if not healthy. The technology sector, which has been a runaway leader for the market over the last year, is among the laggards during this pullback, which we believe reflects some normal rebalancing within the market, instead of signaling something more structural or worrisome about the outlook. We wouldn't rule out some additional ongoing volatility as markets continue to assess the inflation and Fed policy outlook, as well as the tenuous situation in the Middle East. But we think the underpinnings of this bull market remain in decent shape, making temporary pullbacks, in our view, a compelling buying opportunity.

Craig Fehr, CFA
Investment Strategy

^*FactSet