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Stock bulls continue to pause as the major indexes are on track to close out a losing week. If we can get past the weekend with no escalation on the Israel-Iran front, bulls are hoping that Q1 earnings results can reignite the rally.
Specifically there is a lot riding on big tech giants - Facebook-parent Meta, which reports on Wednesday, and Microsoft and Google-parent Alphabet which report on Thursday.
Netflix yesterday was the first of the megacap tech companies to report earnings, which topped expectations for the quarter but disappointed somewhat on forward guidance. It was a similar story for Taiwan Semiconductor, which beat profit forecasts but cautioned on its growth outlook this year.
It’s worth noting that Taiwan Semiconductor’s business was mostly hurt by smartphone seasonality and sliding demand by the automobile industry. The company stressed that AI demand remains “insatiable” and estimates revenue contribution from server AI processors to “more than double this year.” Investors will be closely scrutinizing AI-related revenue in big tech results next week and are anxious to start seeing a payoff that justifies the big gains these stocks have made over the past year or so.
Tesla is also a main highlight next week. The company’s shares have taken a beating this year, falling nearly -40%. CEO Elon Musk just announced “mass layoffs” this week, raising concerns about upcoming earnings, which are out on Tuesday.
Other earnings of note next week include Ameriprise and Verizon on Monday; Baker Hughes, Canadian National Railway, Chubb, CoStar, Danaher, GE Aerospace, General Motors, Halliburton, KimberlyClark, Lockheed Martin, NextEra Energy, Novartis, PepsiCo, RTX Corp, Sherwin Williams, Spotify Texas Instruments, UPS, and Visa on Tuesday; AT&T, Biogen, Boeing, Boston Scientific, Canadian Pacific, Chipotle, CME Group, Ford, General Dynamics, Hilton Worldwide, Norfolk Southern, O’Reilly Automotive, Thermo Fisher Scientific, and Waste Management on Wednesday; Altria, AstraZeneca, AvalonBay Communities, BASF, Bristol Myers Squibb, Capital One Financial, Carrier Global, Caterpillar, Comcast, Dow, Edwards Lifesciences, Gilead Sciences, Honeywell International, Intel, KLA, Merck & Co., Nasdaq, Northrop Grumman, Royal Caribbean Cruises, Sanofi, S&P Global, Southern Copper, TMobile, TotalEnergies, Tractor Supply Co., Union Pacific, and Valero Energy on Thursday; and AbbVie, Chevron, Exxon Mobil, Phillips 66, and Roper Technologies on Friday.
On the economic data front next week, the PCE Prices Index on Friday is the top highlight. The so-called “core” PCE Prices, which strips out food and energy, is one of the Federal Reserve’s preferred gauges. Other economic data next week includes New Home Sales on Tuesday; Durable Goods Orders on Wednesday; the first estimate for Q1 2024 GDP (gross domestic product), Pending Home Sales, and advance reads on Wholesale Inventories, Retail Inventories, and International Trade on Thursday; and Consumer Sentiment on Friday.
Next week will be a busy one for Wall Street.
"No Landing" Scenario Gaining Traction on Wall Street: A growing number of investors believe the US economy is headed for a no landing scenario, in which inflation doesn't reach the Fed's 2% target, but the US economy keeps growing. 36% of respondents to Bank of America's Global Fund Manager Survey, released on Tuesday, said they believe the most likely outcome for the global economy in the next 12 months is a "no landing." This was a noted move higher from the 23% who saw the outcome a month ago and the highest level seen since June 2023, the earliest date on BofA's graph. Meanwhile, 54% of respondents believe a soft landing, where economic growth slows but not to the point of recession, and inflation returns to its historical average, is the most likely outcome. Now, the debate has shifted to whether recent better-than-expected economic data could prohibit further progress on inflation. Recessions don't hit the US economy without a catalyst of some sort, and we just don't see what is going to stop consumer spending, Jefferies US economist Tom Simons wrote in a note on April 12. With demand still solid, it is hard to see how inflation will continue to slow down, and thus it is hard to see how the Fed can cut rates, he said. Source Yahoofinance
"Dow Theory" Could Be Sending Traders Sell Signal: The century-old Dow Jones Transportation Average DJT has failed to rise to a notable new high following the recent record reached by the Dow Jones Industrial Average DJIA on March 28. That could spell trouble for the broader market according to the principles of the Dow Theory, one of the original tools for technical analysis developed by Dow Jones & Co. co-founder Charles Dow more than a century ago. Stocks have endured a rough patch since the beginning of April following a powerful five-month rally that carried the S&P 500 SPX, Nasdaq Composite COMP and Dow industrials to record highs. It's worth noting that The Dow Theory is more than just a technical indicator that is solely based on price movements alone. Rather, as MarketWatch’s Tomi Kilgore explained, it is rooted in the notion that industrial companies and transportation firms have a symbiotic relationship that can provide clues about the future direction of the market. The core of Dow Theory is that a notable high, either a record high, or a 52-week high, in either the industrials or the transports gauge must be confirmed by its sibling in relatively short order. If it isn’t, it could be a sign of trouble brewing in the economy, or at least in the stock market. The transports gauge closed at its lowest level in five months on Wednesday after an earnings miss sent shares of trucking company J.B. Hunt Transport Services Inc. more than 8% lower. This latest bout of weakness followed a break below the gauge’s 200-day moving average on Friday, according to FactSet data. Source MarketWatch
IMF Warns Surge in U.S., China Debt Could Have ‘Profound’ Impact on Global Economy: The U.S. and Chinese governments should take action to lower future borrowing, as a surge in their debts threatens to have “profound” effects on the global economy and the interest rates paid by other countries, the International Monetary Fund said Wednesday. In its twice-yearly report on government borrowing, the Fund said many rich countries have adopted measures that will lead to a reduction in their debts relative to the size of their economies, although not to the levels seen before the Covid-19 pandemic. However, that is not true of the U.S. and China, which will continue to see a surge in borrowing if current policies remain in place. The Fund projected that U.S. government debt relative to economic output will rise by 70% by 2053, while Chinese debt will more than double by the same year. The Fund said both countries will lead a rise in global government debt to 98.8% of economic output in 2029 from 93.2% in 2023. The U.K. and Italy are among the other big contributors to that increase. The IMF expects U.S. government debt to be 133.9% of annual gross domestic product in 2029, up from 122.1% in 2023. And it expects China’s debt to rise to 110.1% of GDP by the same year from 83.6%. An unusually large number of elections is likely to push government borrowing higher this year, the Fund said. It estimates that 88 economies or economic areas are set for significant votes, and that budget deficits tend to be 0.3% of GDP higher in election years than in other years. Source WSJ
Rents Are the Fed’s ‘Biggest Stumbling Block’ in Taming US Inflation: When US inflation peaked above 7% back in 2022, the culprits were everywhere—spread across goods and services. Now, with inflation back below 3%,the problem is mainly about housing. Hotter-than-expected readings for the rental category in the first few months of the year are a big reason the Federal Reserve held back on those rate cuts. Even the rental inflation problem itself isn’t particularly broad-based anymore, geographically: There’s a big difference between the situation in the Northeast and Midwest, where high inflation is lingering, and the West and South, where it’s moderating rapidly. The difference seems to be all about supply. New York City and Phoenix perhaps best represent the opposite ends of the spectrum. In the New York metro area, the owners’ equivalent rent component of the consumer price index rose 5.6% in the 12 months through March, a rate not much below last year’s peak of 6.3%. The addition of rental units in the metro area has lagged far behind that of other major cities, and it’s been at a near standstill since mid‑2022. In contrast, the Phoenix metro area is awash in new housing. Rental inflation there was only 3% in the 12 months through March—below pre-pandemic levels—after accelerating to almost 18% in 2022. Source Bloomberg
Ozempic ‘Oops’ Babies Follow Weight Loss: A surprising thing is happening to some women on weight-loss drugs who’ve struggled with fertility issues: They’re getting pregnant. That’s leading to questions about the safety of medications from Novo Nordisk A/S and Eli Lilly & Co. during pregnancy. The development is encouraging doctors to use GLP-1 drugs to treat polycystic ovary syndrome, one of the leading causes of infertility in US women. Yet they’re doing so without much data on the drugs’ impact on pregnancy. “The ‘oops’ babies on Ozempic and Wegovy are happening all over the place,” said Melanie Cree, director of the PCOS clinic at Children’s Hospital Colorado in Aurora. “It’s very exciting, but it’s a bit scary because we’re moving forward without all the data.” The need for treatments is severe. Despite its prevalence, no drugs are approved for PCOS, and experts are divided on whether commonly recommended diet programs work. Some doctors and patients are willing to try almost anything, and the successes are tantalizing. Source Bloomberg
FAA Searching for NewAir Traffic Controllers: The Federal Aviation Administration is looking to hire a new batch of air traffic controllers amid a push to beef up staffing at many of the country's towers and other air traffic control (ATC) facilities. Wannabe air traffic controllers don't need a degree — meaning the job may appeal to the many young Americans who are turning to trade and vocational work instead of a college education, as Axios' Erica Pandey reports. The FAA's new air traffic controller hiring window is open from April 19-22. Applicants must have U.S. citizenship, English language proficiency, and pass medical, security and other pre-employment tests and checks. They also need to be younger than 31 (controllers must retire at 56, so the applicant age rule helps ensure that newbies have a long career). The agency wants to hire 1,800 controllers this year and 2,000 in 2025. The FAA is also looking to boost ATC staffing by working with aviation colleges to rethink the college-to-controller pipeline. Source Axios
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