Daily market snapshot

• Stocks end the week on a strong note: Stocks closed sharply higher on Friday, as strong earnings reports from mega-cap technology firms Alphabet (Google) and Microsoft, as well as inflation data in the U.S. that was in line with expectations, supported a rebound in market sentiment. Despite a volatile week, the S&P 500 closed higher by over 2.6% this week*. However, after five straight months of gains across the S&P 500, Nasdaq and Dow Jones, the indexes are all on track for a losing month in April. This would also mark the first correction in stocks for the year, as uncertainty around Fed rate cuts and the path of inflation sparked volatility in equity and bond markets. While U.S. Treasury yields moved lower on Friday, they remain on pace for substantial gains for the month. For example, the 2-year Treasury yield, often considered a proxy for the fed funds rate, went from about 4.6% to 5.0% in April, at highs of the year*. The sharp move higher in yields has weighed particularly on interest-rate-sensitive parts of the market, including small-cap stocks, sectors like real estate, and investment-grade bonds.
• Large-cap technology earnings support a rebound in markets: Strong earnings reports and guidance on Thursday from technology heavyweights Google and Microsoft helped drive a bounce-back in markets and sentiment. Both companies highlighted strong returns from their artificial intelligence (AI) businesses, and both expect to continue to spend and grow this business segment in the year ahead. Google also announced its first ever cash dividend, underscoring how large-cap technology firms with robust balance sheets can return value to shareholders, especially in an elevated interest-rate environment. More broadly, about 45% of S&P 500 companies have reported first-quarter earnings already, with 80% of these reporting a positive earnings surprise, well above the 10-year average of 74%*. First-quarter earnings growth is on pace for 2.0% year-over-year, somewhat below the 3.4% growth forecast at the end of March. Nonetheless, for the full-year 2024, expectations remain intact for 10.5% year-over-year earnings growth*, driven by both growth and value sectors, which, in our view, would support a broadening of market leadership in the year ahead.
• U.S. personal consumption expenditure (PCE) inflation in line with expectations: All eyes were on Friday's PCE inflation report, particularly after hotter-than-expected CPI and PPI reports earlier this month. However, PCE inflation for the month of March came in largely in line with expectations, providing some relief to markets. Headline PCE inflation was up 0.3% on a month-over-month basis, in line with expectations, although annual PCE inflation was 2.7%, a tick higher than expectations of 2.6% and last month's 2.5%*. Core PCE inflation, excluding food and energy, was also up 0.3% monthly, in line with expectations. On a year-over-year basis, core PCE inflation was up 2.8%, slightly higher than expectations of 2.7% but in line with last month's 2.8%*. Services inflation was the key driver, up 4%, while goods inflation rose a more modest 0.1% in March*. Overall, inflation data has been hotter than expected in the first quarter of 2024. However, in our view, the drivers of persistent inflation have been areas like energy and commodities, which have cooled in recent weeks, and idiosyncratic pricing in areas like motor vehicles. Given our view that easing shelter and rent pricing should show up in the inflation baskets in the months ahead, and wage gains may also ease, we see services inflation continuing a downward path in the year ahead, albeit perhaps not in a straight line lower. We expect the last mile to around 2.5% inflation or lower to be bumpy, but thus far we don't see any substantial reason that the path of disinflation has gone off-course.

Mona Mahajan
Investment Strategist

^*FactSet.

• Stocks waver in response to soft GDP reading: Stocks finished lower on Thursday in response to a softer-than-expected first-quarter GDP reading and higher-than-expected prices. Real GDP grew at a 1.6% annualized rate in the first quarter, below expectations, while the GDP Chain Price Index (which measures changes in prices of goods and services produced in the U.S.) rose at a 3.1% annualized rate, which was above expectations. In response, equity markets finished lower while bond yields rose, with the 10-year Treasury yield back around 4.70%.* Leadership favored commodity-sensitive sectors, with energy and materials the top performers of the S&P 500 today.* On the corporate front, shares of Meta were under pressure, closing lower by roughly 10%, following mixed earnings results after market close yesterday. While Meta exceeded earnings expectations for the first quarter, forward guidance from management highlighted an expectation for higher costs due to increased investment spending, which is weighing on sentiment.
• First-quarter GDP misses expectations: First-quarter real GDP rose by 1.6% on an annualized basis, below expectations for 2.2% and below the fourth-quarter reading of 3.4%.* Looking into the drivers of growth for the first quarter, household consumption held up well, growing at a 2.5% annualized rate, driven by robust spending on services.* Net exports were the principal detractor in the first-quarter reading, as growth in imports far outpaced that of exports, with lagging exports potentially signaling weak global demand in the first quarter.* Additionally, the contribution to GDP growth from government spending slowed in the first quarter, rising at a 1.2% annualized pace versus 4.6% in the prior quarter.* In addition to the softer-than-expected growth reading, the GDP Chain Price Index rose at a 3.1% annualized rate, well above expectations of 2.7%.* The combination of softer-than-expected growth and higher-than-expected prices drove bond yields higher and stocks lower on Thursday. While market volatility is never comfortable, we'd remind investors that the S&P 500 has gained roughly 20% since early November and that markets normally experience one to three pullbacks in the 5% - 10% range per year.** We believe opportunities remain attractive in equity markets, and we recommend investors use pockets of volatility to add to quality investments in line with their financial goals.  
• Inflation and corporate earnings in focus Friday: Inflation and corporate earnings will set the tone for markets to close out the week. Technology heavyweights Microsoft and Alphabet (Google) will report after market close today, while personal consumption expenditures (PCE) inflation will be out tomorrow morning. On the earnings front, roughly 40% of companies in the S&P 500 having reported, with 80% of those companies exceeding expectations.* Full-year estimates have held steady, calling for roughly 10.3% year-over-year growth. Turning to inflation, expectations are for core PCE to rise by 2.7% year-over-year, down from the prior reading of 2.8%.* Headline PCE is expected to see a modest uptick, rising from 2.5% year-over-year to 2.6%, likely due to higher commodity prices.* Higher-than-expected inflation in the first few months of the year has tempered market expectations for Fed rate cuts, with the first cut priced in for the September meeting.* Despite elevated inflation data to start the year, the trend remains lower, and we believe the Fed will likely have a case to cut rates later this year, perhaps in the fall.

Brock Weimer, CFA
Associate Analyst 

^{*FactSet.
**FactSet, Edward Jones}

• 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 

^{*FactSet.
**S&P Capital IQ Pro}

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