The market rally is currently facing a delicate situation after months of growth.
The S&P 500 (^GSPC) closed below 5,000 on Friday for the first time since late February. Additionally, the Nasdaq Composite (^IXIC) fell over 5% during the week, while the Dow remained steady.
This week will be crucial as key data on economic growth, inflation, and Big Tech earnings will influence the market’s direction.
On the economic front, the advanced first-quarter economic growth reading is scheduled for Thursday, followed by the March reading of the Personal Consumption Expenditures index on Friday, which is the Fed’s preferred inflation measure.
In corporate news, several S&P 500 companies, including Meta (META), Microsoft (MSFT), Alphabet (GOOGL, GOOG), Tesla (TSLA), and Chipotle (CMG), are expected to report quarterly results.
The Fed’s preferred inflation gauge
The recent fluctuation in inflation readings has led investors to reconsider their expectations for Federal Reserve interest rate cuts this year.
Chicago Fed President Austan Goolsbee expressed concerns about the stalled progress on inflation, suggesting that the central bank should wait for more clarity on the inflation trajectory.
Friday’s PCE reading is highly anticipated, with economists predicting a slight decrease in the annual core PCE rate for March compared to February.
Growth update
The positive economic outlook has helped offset concerns about Fed interest rate cuts, with economists raising their economic growth forecasts for the first quarter.
Thursday’s report will reveal whether the US economy grew as expected in the first three months of the year.
Economists anticipate a lower annualized growth rate for the first quarter compared to the previous quarter.
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Earnings aren’t impressing
Despite some companies surpassing earnings expectations, the market rally darlings’ significant share price increases have not significantly impacted stock performance.
Stock reactions following quarterly earnings releases have been mixed, with companies exceeding estimates experiencing modest gains and underperformers facing larger declines.
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Big Tech on deck
With investors seeking stronger earnings reports, attention will turn to Big Tech companies, which have been a driving force in the market.
Although there was a tech sell-off last week, expectations for earnings growth remain high for companies like Meta, Microsoft, and Alphabet.
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Surging yields
Aside from earnings, rising bond yields will be closely monitored by investors as they could impact market movements.
The 2-year Treasury yield reached 5% for the first time since October 2023, following comments from Federal Reserve Chair Jerome Powell regarding inflation targets.
Investors are advised to stay cautious in light of these developments.
He recommended exposure to sectors such as Health Care (XLV) and Consumer Staples (XLP) while also noting the roughly 5% that can be earned by holding cash in a money market account is still a viable portion of a portfolio.
Weekly Calendar
Monday
Economic data: Chicago Fed Nat Activity Index, March (+0.05 prior)
Earnings: Albertsons (ACI), Bank of Hawaii (BOH), Cleveland Cliffs (CLF), Nucor (NUE), SAP (SAP), Truist (TFC), Verizon (VZ), Zions Bancorporation (ZION)
Tuesday
Economic data: S&P Global US manufacturing PMI, April, preliminary (52.0 expected, 51.9 previously); S&P Global US services PMI, April, preliminary (52 expected, 51.9 previously); S&P Global US composite PMI, April, preliminary (52 expected, 52.1 previously); Richmond Fed Manufacturing Index, April (-11 prior); New home sales, March (670,000 expected, 662,000 previously); New home sales, month-over-month, March (1.2% expected, -0.3% previously)
Earnings: Freeport-McMoRan (FCX), General Electric (GE), General Motors (GM), Halliburton (HAL), JetBlue (JBLU), Lockheed Martin (LMT), Mattel (MAT), PepsiCo (PEP), Raytheon Technologies (RTX), Spotify (SPOT), Steel Dynamics (STLD), Tesla (TSLA), UPS (UPS), Texas Instruments (TXN), Visa (V)
Wednesday
Economic data: MBA Mortgage Applications, week ending April 19 (+3.3% prior); Durable Goods Orders, March preliminary (+2.5% expected, +1.3% prior)
Earnings: Meta Platforms (META), AT&T (T), Boeing (BA), Chipotle (CMG), Ford (F), Humana (HUM), ADP (ADP), eBay (EBAY), General Dynamics (GD), Hilton (HLT), IBM (IBM), O’Reilly Auto Parts (ORLY), ServiceNow (NOW), Viking Therapeutics (VKTX)
Thursday
Economic data: First quarter GDP, first estimate (+2.5% annualized rate expected, +3.4% previously); First quarter personal consumption, first estimate (+2.6% expected, 3.3% previously); Initial jobless claims, week ended, April 20 (215,000 expected, 212,000 previously); Pending home sales, month-over-month, March (+1.0% expected, +1.6% previously)
Earnings: Alphabet (GOOGL), Microsoft (MSFT), American Airlines (AAL), AstraZeneca (AZN), Caterpillar (CAT), Intel (INTC), Mobileye (MBLY), Roku (ROKU), Snap (SNAP), Royal Caribbean (RCL), Southwest (LUV), T-Mobile (TMUS)
Friday
Economic data: Personal income, month-over-month, March (+0.5% expected, +0.3% previously); Personal spending, month-over-month, March (+0.6% expected, +0.8% previously); PCE inflation, month-over-month, March (+0.3% expected, +0.3% previously); PCE inflation, year-over-year, March (+2.6% expected, +2.5% previously); “Core” PCE, month-over-month, March (+0.3% expected, +0.3% previously); “Core” PCE, year-over-year, March (+2.7% expected; +2.8% previously); University of Michigan consumer sentiment, April, final reading (77.9 expected, 77.9 previously)
Earnings: Exxon Mobil (XOM), Chevron (CVX), Charter Communications (CHTR), Colgate (CL)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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