The added 2.7% last week, buoyed by strong earnings reports from tech giants Microsoft (NASDAQ:) and Alphabet (NASDAQ:), as well as an in-line PCE report for March.
This is despite the fact that Meta Platforms (NASDAQ:) witnessed a sharp share price decline of over 10% after a higher capex/opex forecast.
S&P 500 companies that beat earnings estimates this quarter have seen their stocks average outperformance of just 0.2%, while missing estimates have seen their stocks underperform by an average of 4%, the largest difference in at least eight years means.
What will the Fed do now? Economists discuss
In addition to the first quarter earnings season, inflation figures were also a point of attention last week. March’s core PCE inflation showed a month-on-month increase of 0.32% and a year-on-year increase of 2.8%.
This has led economists at Citi to anticipate a rate cut by the Federal Reserve in July, with a total of 100 basis points of cuts expected this year. The bank notes that while activity data, particularly in the labor market, could prompt a cut in June, spending data in March was robust, with services sector strength increasingly concentrated in sectors such as healthcare.
“With only one month of inflation data for April before the June FOMC meeting, officials will likely have to wait until July to gain ‘more confidence’ that inflation is slowing,” they wrote in the report.
Economists at Evercore ISI pointed out that while March headline and core price deflators were as expected, estimates for January and February were revised upward.
They forecast payroll employment to increase by +200,000 in April, with the unemployment rate falling to 3.7% and average hourly earnings growing +0.3% month-on-month, or 4.1% year-on-year -year.
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Elsewhere, Bank of America economists said Friday’s figures were “indicative of strong demand rather than ‘stagflation.’
“The Fed should keep that on hold in the short term,” they argued.
The coming week is set to be eventful, with Amazon (NASDAQ:) set to report its earnings results on Tuesday and Apple (NASDAQ:) on Thursday.
In addition, the Federal Reserve will release its monetary policy statement on Wednesday after a two-day meeting.
According to Navellier & Associates, this week’s meeting and FOMC statement “will be a big deal.”
“The Fed typically cuts key interest rates before presidential elections and this year is expected to be no different. So Fed rate cuts are still in the pipeline, as Fed Chairman Jerome Powell has telegraphed,” they said.
“But we’ll see what the Fed thinks going forward.”
