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Stock investors have a very busy week ahead, including a packed Q1 2024 earnings calendar and key economic data.
Right now, it appears as if geopolitical tensions should be a fading influence this week. Israel delivered a counterstrike against an Iranian target on Friday but Iran has said it doesn’t plan to retaliate, or does it? If the truce holds, it could bring some relief to surging oil prices that have exacerbated worries about inflation reigniting.
Stock bulls are also hoping to see a pullback in bond yields that have been boosted by both investors seeking a “safe haven” as well as worries that the Fed will need to keep interest rates higher for longer, especially if energy prices soar. If we can get some of the “war worries" off the plate, bulls believe big tech earnings over the coming days can help pull stocks out of the recent slump and maybe even spark a new rally.
Tech stocks have taken a hit lately amid concerns about bloated valuations as well as Wall Street’s fading outlook for Federal Reserve rate cuts. Profits for the so-called “Magnificent Seven” - Google-parent Alphabet, Amazon, Apple, Facebook-parent Meta Platforms, Microsoft, Nvidia, and Tesla - are expected to climb some +38% in Q1, versus the +2.4% gain for the S&P 500 overall.
Excluding the Magnificent Seven, profits for S&P 500 companies are projected to decline nearly -4%. Four of the Magnificent Seven release results this week - Tesla reports on Tuesday, followed by Meta on Wednesday, and Alphabet Microsoft on Thursday. Amazon results are scheduled for next Tuesday (April 30), while Apple reports next Thursday (May 2). Nvidia’s earnings won’t be out until May 22. Notably, when excluding Nvidia, earnings growth estimates for the remaining six falls to around +23%, with Apple and Tesla expected to be the main drag on the rest of the group.
It’s also worth noting that as a group, these seven stocks have lost around -$930 billion in value over the last month. Bulls believe that some consolidation ahead of earnings presents a “bargain” buying opportunity that could help juice any earnings-induced rally this week.
Bears continue to caution that AI may be a much slower contributor to profit growth than many on Wall Street currently anticipate and believe disappointing Q1 results and lackluster forward guidance could accelerate a tech selloff that quickly drags down wider indexes.
On the economic data front, there is nothing of note due today but several key reports later this week could have a influence on the market. Those include the first estimate of Q1 2024 GDP (gross domestic product) on Thursday, followed on Friday by the PCE Prices Index, one of the Fed’s preferred inflation gauges.
House Passes $95 Billion Foreign Aid Package After Months-Long Delay: The U.S. House on Saturday voted on a bipartisan basis to pass a $95 billion foreign aid package for Ukraine, Israel, and the Indo-Pacific. The vote puts Congress on track to send long sought-after aid to Ukraine more than two months after similar legislation was sent over from the Senate. The package was passed in four separate bills, one each for Israel, Ukraine and the Indo-Pacific and another containing sanctions on Russia, China and Iran, including the REPO Act and TikTok ban legislation. House Speaker Mike Johnson moved forward with the legislation despite fierce opposition and threats of removal from his rebellious right flank, who decried the funding for Ukraine and lack of border policy. Johnson noted the legislation is not perfect but the House has made many strong improvements to the Senate bill, including language preventing funding from going to Hamas or any other bad actors. It's an old military adage, Johnson said, but we would rather send bullets to the conflict overseas than our own boys, our troops. Source Axios
Nvidia and Chipotle, Two Stocks That Have Created Fortunes for Investors: There were a couple of research papers circulating this past week that showed if you had invested $20,000 in Chipotle stock back on its IPO in 2006 the investment would be worth over +$1.2 million today, and $20,000 invested in Nvidia on its IPO back in 1999 would be worth over +$70 million! Interestingly, The Wall Street Journal ran an article this weekend talking about Chipotle's crazy success. A few things that caught my eye... Chipotle has no problem increasing its prices. In fact, just since 2021 they have increased prices six times, yet they continue to show growth while a lot of other restaurant chains are struggling, i.e. Chipotle’s stock has rocketed +59% in the last 12 months, while an S&P 500 subindex of U.S. restaurants was flat. Chipotle is benefiting from a unique base of customers who tend to be more affluent, more loyal, and health-conscious than the average restaurant-goer. In addition, more than half of its customers are Millennials or Gen Z, meaning its growth might still be in the early innings. Some regulars say the chain’s customization-friendly assembly line model lets them tailor burritos and bowls to their diets. Others say that despite the rising prices, Chipotle remains a better overall value than fast-food burgers. Also, interesting, is the fact they only have about 3,300 restaurants here in the US, which isn't all that many in the grand scheme, when you see McDonlads with over 13,000 and Starbucks with over 16,000 locations in the US. Also, keep in mind, that Chipotle only has a handful of locations in Canada, the United Kingdom, France, and Germany, and is just opening up in the Middle East. Who knows, perhaps there's a lot more growth ahead for both Nvidia and Chipotle. What a run both stocks have had!
China Is Front and Center of Gold’s Record-Breaking Rally: Gold’s rise to all-time highs above $2,400 an ounce this year has captivated global markets. China, the world’s biggest producer and consumer of the precious metal, is front and center of the extraordinary ascent. Worsening geopolitical tensions, including war in the Middle East and Ukraine, and the prospect of lower US interest rates all burnish gold’s billing as an investment. But juicing the rally is unrelenting Chinese demand, as retail shoppers, fund investors, futures traders and even the central bank look to bullion as a store of value in uncertain times. China and India have typically vied over the title of world’s biggest buyer. But that shifted last year as Chinese consumption of jewelry, bars and coins swelled to record levels. China’s gold jewelry demand rose +10% while India’s fell -6%. Chinese bar and coin investments, meanwhile, surged +28%. And there’s still room for demand to grow. Amid limited investment options in China, the protracted crisis in its property sector, volatile stock markets and a weakening yuan are all driving money to assets that are perceived to be safer. Although China mines more gold than any other country, it still needs to import a lot and the quantities are getting larger. In the last two years, overseas purchases totaled over 2,800 tons — more than all of the metal that backs exchange-traded funds around the world, or about a third of the stockpiles held by the US Federal Reserve. Source Bloomberg
Most Weight Loss Drug Users are Spending Less at Restaurants: Most people taking GLP-1 medications, a highly popular group of weight loss and diabetes drugs, say they are spending less on eating out at restaurants and ordering takeout, according to a Morgan Stanley survey. A smaller share of those surveyed say they are tightening their purse strings in the grocery store. The findings add to the mounting concerns that soaring demand for GLP-1s could take a bite out of the bottom lines of some of the biggest restaurant companies and makers of packaged snacks like Doritos, Oreos and Hershey’s Kisses. GLP-1s include Novo Nordisk’s blockbuster weight loss injection Wegovy and diabetes counterpart Ozempic, along with Eli Lilly’s popular weight loss treatment Zepbound and diabetes injection Mounjaro. The rising demand for these four drugs isn’t expected to ease anytime soon. In the new survey, Morgan Stanley analysts said they expect the market for GLP-1s to be worth $105 billion by 2030. They also estimate that 31.5 million people, or around 9% of the U.S. population, will take GLP-1s by 2035. But many food and beverage companies have reassured investors over the last few months that it’s still unclear how much those drugs will lower their revenue. Morgan Stanley also said in the survey that GLP-1s are a manageable long-term pressure on restaurants, not an “existential risk.” Healthier fast-casual restaurants and coffee are better positioned to manage the increasing consumer use of GLP-1s. Source CNBC
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