Investors continue to debate the outlook for Q1 earnings, the Fed's next policy moves, and the likelihood of the US economy slipping into recession. Bulls are pointing to earnings for S&P 500 companies that are so far topping analysts expectations by around +9%.

Bears however argue that only a small portion of S&P 500 companies have actually reported with most big tech firms not weighing in for another week or two. Keep in mind that tech stocks still dominate the S&P 500, particularly Apple and Microsoft which comprise over +13% of the index by total weight. In fact, the two stocks accounted for about half of the S&P's March gain of +3.5%.

Year-to-date, Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla are responsible for nearly 90% of the S&P 500's gains. Meaning if earnings for these seven mega caps disappoint and their stocks start to give back those gains, it will likely weigh heavy on wider indexes.

A lot of money has flowed into big tech stalwarts with many investors viewing them as a sort of defensive play against turmoil in the bank sector. Bulls argue that the gains also represent a recovery from overly bearish sentiment that hammered tech stocks in 2022 and saw the tech-heavy Nasdaq lose some -33%.

Currently, the Nasdaq is up over +16% and the S&P 500 is up just over +8% this year. To push higher, bears contend that earnings results need to come in much better than expected. Analysts are still expecting a -5% to -6% decline for S&P 500 companies. More importantly, if companies are offering weak or lower outlooks and full year 2023 expectations start to slide, it may be tough for bulls to justify pushing stocks higher from here.

For reference, Tesla reports today (4/19), Alphabet and Microsoft report next Tuesday (4/25), Meta reports next Wednesday (4/26), Amazon reports next Thursday (4/27), Apple reports on May 4, and NVIDIA reports on May 24.

Netflix yesterday posted profits and revenue in line with expectations but fell short on new subscribers. It also offered weaker than expected guidance for Q2. Beyond Tesla, today's highlights include Abbott Labs, Alcoa, Ally Financial, ASML Holdings, Baker Hughes, Citizens Financial, Discover Financial, IBM, Kinder Morgan, Las Vegas Sands, Morgan Stanley, Nasdaq, Synchrony Financial, and The Travelers Companies.

Turning to the Fed, there is not really any "new" news but Wall Street is heavily debating whether the Fed will begin cutting rates before the end of 2023. The Fed's benchmark rate is currently at 4.75%-5.0% and traders give odds of more than 80% that the rate will be lifted another 25 basis-points at the May 2-3 meeting. Consensus mostly expects rates will be at current levels or lower by December. However, Fed officials have continued to warn this week that they believe rates need to stay higher for longer in order to be sure inflation has been fully defeated.

The Fed's most recent "dot plot", which charts where Fed members see interest rates in the future, projects rates will peak at 5.1% in 2023 and end 2024 at a still-elevated 4.3%.

It's worth noting that Bank of America yesterday said its customers boosted spending by some +8% in the first quarter, which is not what the Fed is looking for as it seeks to cool the economy. It also doesn't exactly scream "recession," another key concern for Wall Street. That of course could change if the job market cracks and consumer budgets continue to be stretched by high prices.

Economic data today is light with the Fed's Beige Book being the main highlight.

What a Chinese Ban of Rare Earth Metals Could Mean: China is quickly moving toward a ban on certain rare earth metal exports and the policy change could create a disruption in non-Chinese economies unable to source enough rare earth metals needed for high-tech products and high-performance magnets. In a report from Nikkei out of Beijing, China’s move will likely come soon in 2023, as the amendment to the country’s technology export restriction list has already passed several hurdles. This update to the list of banned export materials is likely to cause significant issues for both the United States and Japan. This all comes as a response to the U.S. and others limiting their own exportation of high-tech microchips, leaving China on the outside looking in. The Asia News Network says Xi Jinping, China’s president, has focused on magnets as an economic growth point and a national security benefit. According to the Asia News Network, China has an 84% share of the global market in neodymium magnets and over 90% interest in samarium cobalt magnets. Japan holds most of the remaining share. If China does cease all exportation of these materials, much of Europe and the U.S. will become wholly dependent on China to produce components and likely products from the materials, taking away key production strongholds for other countries. Source Popular Mechanics

Will the US Dollar Continue to Weaken? After an 18-month bull run that took it to a 20-year high against a basket of currencies in September last year, the greenback has been in retreat as analysts have scaled back their expectations of US interest rate rises. Last week the dollar hit its lowest level in a year against the euro, as well as against the broader currency basket. Despite the falls, hedge funds and some analysts believe the greater potential for rate rises in the eurozone, where economic growth is improving, and the UK will continue to put downward pressure on the dollar. Speculative traders have roughly doubled their short positions in the dollar since mid-March, according to calculations by Refinitiv based on CFTC data, indicating that hedge funds are betting that the dollar will fall further. In the latest weekly data, which runs to April 10, speculators added to their short positions, bringing the total to $10.73bn. Source Financial Times

China's +19% Youth Unemployment Rate Poses Threat: Youth unemployment in China worsened in March, even as the country’s economy recovers from years of COVID-era isolation, according to economic data the government released Tuesday. Unemployment among those ages 16 to 24 rose to 19.6% in March, up from 18.1% in both January and February, and inching toward the 19.9% of last July, the highest level since records began in 2018. Youth unemployment was 16% in March 2022. A rise in youth unemployment is often expected in March as graduates look for jobs again after the Lunar New Year holiday, says Larry Hu, the Macquarie Group’s chief China economist. Yet “weak confidence” will continue to constrain the job market, Hu says. “Companies are reluctant to hire more workers because consumers are cautious. But without a strong labor market, consumers will be hesitant to spend,” he says. “Unsustainable” youth unemployment could become “a threat to social stability,” says Brock Silvers, chief investment officer at Kaiyuan Capital, a private equity firm. But he notes that Beijing faces a number of ongoing economic issues, such as the real estate crisis, and so tackling the youth jobs crisis may fall by the wayside. That will put Beijing in “a tough position with regard to today’s youth, who are increasingly feeling alienated from China’s economic prosperity,” he says. Source Fortune

Bank Crisis Now Undoing the Bond Losses that Sparked It: Rising rates over the past year saddled banks with losses on their massive portfolios of bonds. Those losses helped sink Silicon Valley Bank last month. But since that failure sparked turmoil across the banking sector, falling bond yields have narrowed those losses. Bank of America, which released its first-quarter earnings Tuesday, is the latest to benefit. Losses on Bank of America’s held-to-maturity bond portfolio grew to more than $116 billion at the end of September, meaning that if it hypothetically had to recognize those losses, it would erase 43% of its total equity. Bank of America said Tuesday that unrealized losses on its held-to-maturity portfolio had shrunk to $99.08 billion, or 35% of equity. Between March 9, the day before SVB failed, and the end of the quarter, the yield on the 10-year Treasury note fell -0.43 percentage point to 3.49%. It edged up to 3.59% on Monday. That yield has been falling largely because the banking turmoil heightened fears of a recession. In turn, unrealized losses have been shrinking. The entire industry had some $620 billion of unrealized losses on their bond portfolios at the end of last year, according to the Federal Deposit Insurance Corp. Source WSJ

What Jobs are Most at Risk from ChatGPT and Other AI Tools: After decades of blue-collar jobs being snatched up by machines, advanced chatbots are now breathing down white collars. “Generative” artificial-intelligence (ai) tools, such as ChatGPT, have made significant progress in crafting human-sounding language and grasping context. So much so that they have leapfrogged humans in some tasks. This could make as many as 300m jobs redundant globally, according to Goldman Sachs. Several new papers consider which sectors will face the biggest shake-up, which The Economist compiled in the chart below. A recent study by OpenAI, the startup that created ChatGPT, looked at the potential for automation across 1,016 occupations. They found that 80% of Americans could have at least 10% of their work tasks done by advanced AI tools. The figure rises to 50% of tasks for an estimated 19% of workers. Most exposed are industries which rely on programming and writing skills. That echoes another study, published on March 1st by academics in America, which found that the industries most at risk of a shake-up were legal services and some areas of the financial and insurance industries. They point to telemarketers as the occupation most likely to be made redundant. Teachers, especially those of languages, literature and history, are next on the list. Source The Economist

More Americans Using "Buy Now, Pay Later" Apps to Buy Groceries: US consumers are increasingly using “buy now, pay later” apps to pay for everyday items like groceries. Almost half of Americans have used BNPL apps, and of those, about 1 in 5 rely on such apps to buy groceries, according to a recent survey from LendingTree Inc. Some 27% of users use the loans as a bridge to their next paycheck. The model typically allows buyers to spread payments out evenly without accruing interest, making it an attractive alternative to credit cards, with US interest rates at their highest level since 2007. More players are getting in, with Apple Inc. introducing Apple Pay Later last month. BNPL can be the last option to tide consumers over after other financing choices are exhausted, or the only viable route for those unable to gain access to traditional credit. But it can turn from a convenience to a catastrophe, especially if users fall behind on payments and allow late fees to pile up, which does hurt their credit score. Source Bloomberg

Biggest US Banks Wrote Off $3.4 Billion in Bad Consumer Loans: Bank of America Corp. joined its largest rivals in setting aside more reserves as a growing number of consumers couldn’t keep up with their loan payments, even as executives dialed down fears of a looming crisis. The four biggest US lenders wrote off a combined $3.4 billion in bad consumer loans in the first three months of 2023, a +73% increase from a year earlier. That, combined with additional reserves, boosted provisions at all four institutions to levels not seen since the earliest days of the Covid-19 pandemic. But so far, bank executives have been adamant that the recent increase in provisions is nothing more than losses returning to normal after pandemic-era government stimulus programs kept consumer defaults artificially low. “We haven’t seen any cracks in that portfolio yet,” Bank of America Chief Financial Officer Alastair Borthwick said Tuesday on a conference call with reporters. “The consumer is in great shape.” Source Bloomberg

Musk Says He’s Building "Maximum Truth-Seeking AI": Elon Musk has laid out his plans for an artificial-intelligence company, seeking to rival Microsoft and Google-parent Alphabet . Shareholders of Tesla might not like his direction of thinking. “I’m going to start something which I call ‘Truth GPT’ or a maximum truth-seeking AI that tries to understand the nature of the universe,” Mr. Musk said in an interview on Fox News late Monday night. The move comes despite Musk recently signing an open letter calling for a pause in training more powerful systems, alongside various AI researchers. Musk co-founded OpenAI but left the company in 2018. There are reasons for investors in Tesla There are reasons for investors in Tesla. The first is distraction. Musk already has plenty on his plate as CEO of three companies: Tesla, rocket company SpaceX, and social-media network Twitter. Secondly, Musk’s positioning of his AI venture sounds like he’s gearing up for a political fight. Musk said he was concerned that ChatGPT has been trained to be “politically correct.” Finally, it’s another potential strain on Musk’s personal financial resources that could lead him to consider selling more Tesla stock. Source Barrons

Nurse Shortage Pushes US Hospitals Into the Gig Economy: Some of the nation’s largest hospital systems are using apps similar to ride-hailing technology to attract scarce nurses. An app from ShiftKey lets workers bid for shifts. Another, CareRev, helps hospitals adjust pay to match supply, lowering rates for popular shifts and raising them to entice nurses to work overnight or holidays. The shift is among many ways hospitals are revamping hiring, schedules and pay to give nurses more control and to fill staffing gaps created by persistent labor shortages. Vacancies are straining many hospitals’ operations despite recent hiring gains at hospitals and reports of softer demand from some temporary-staffing companies. Many nurses retired or left the field after the pandemic made their jobs far harder. Others switched hospitals for jobs with higher pay or more flexible schedules. Nurse employment dropped by more than 100,000 workers between 2020 and 2021, the largest decline in four decades of available data, a study in the journal Health Affairs showed. Source WSJ

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