Investors are braced for a critical week of earnings with some 180 S&P 500 companies scheduled to report, and some big tech names in the mix. Also, keep in mind, Fed speakers have entered their "blackout period" ahead of its upcoming May 3rd FOMC meeting, meaning, earnings the next two weeks will heavily influence market direction.

Alphabet (Google) and Microsoft reporting on Tuesday, Meta on Wednesday, and Amazon on Thursday.

These names are all up big and beating the S&P 500 by a wide margin this year, so they need to provide strong numbers and more importantly a good outlook.

Alphabet is up up +19% this year, but has missed earnings expectations every quarter over the past year. Microsoft is up +19% and has beat earnings expectations three out of the last four quarters. META (Facebook) is up +75%, and has missed in the last three consecutive quarters by sizable margins.

The trade is thinking that Facebook has been slashing its spending and should look more profitable in the next couple of quarters. Amazon is up +27%, and has missed in three of the past four quarters.

So far, just under 20% of the S&P 500 companies have reported, with about 75% beating expectations. Bears continue to point out the low bar that has been set by analysts for Q1 earnings results. In other words, despite all of the companies beating expectations, Q1 earnings for S&P 500 companies are actually on track to decline over -6%. Bears also warn that tech stock valuations in particular have already pushed too high with companies like Apple and Microsoft trading at a forward price-to-earnings ratio of over +25, compared to 18 for the S&P 500 as a whole, which is also arguably a bit rich.

Bears believe this is particularly worrisome in the face of high interest rates that may still climb further and are likely to stay elevated for an extended period of time. Bears also warn that a recession in the second half of 2023, which a majority of Wall Street is bracing for, should mean even lower stock valuations ahead.

Bulls argue that stock markets have already priced in a potential recession, including the tech sector which witnessed double-digit losses last year. And while share prices have risen for many tech companies, most have still failed to recapture their all-time highs. Bulls also believe that cutbacks made by tech companies and others in preparation for a looming recession will help deliver better-than-expected results and help insulate profits in the quarters ahead.

For what it's worth, communication services companies, including Alphabet and Meta, are expected to post earnings declines of -12%, according to Refinitiv data.

On the economic data front, investors will be closely watching several reports that could impact Wall Street's expectations for upcoming Federal Reserve moves. April Consumer Confidence on Tuesday is expected to remain flat which would indicate that consumers have not grown more worried about an economic slowdown. The Fed and other economists believe consumer expectations can be a self-fulfilling prophecy so they watch this metric closely. Unfortunately, confidence levels so far in 2023 have remained below 80, a level that often signals a recession within the next 12 months.

Thursday brings the first estimate of Q1 Gross Domestic Product (GDP) with economists expecting it to show the US economy grew at an annualized rate of +2%. If it comes in much above expectations, it could raise worries that the Fed might not feel the need to back off its rate hiking campaign as soon as Wall Street is anticipating. On the other hand, a read much below expectations could ignite more serious concerns about recession.

Probably the most critical data this week is the PCE prices index due out on Friday. The annual rate is expected to slow to +4.2% from +5.0% previously. The "core" rate - which strips out food and energy and is one of the Fed's preferred inflation gauges - is expected to slow slightly to +4.5% from +4.6% in March.

Today's data highlight is the Dallas Fed Manufacturing Index. Key earnings today include Canadian National Railway, Coca-Cola, and Whirlpool.

Individual Investors Continue to Buy Stocks in Big Way: Individuals bought a net $77.7 billion in equities and ETFs on U.S. exchanges in the first three months of the year, according to Vanda Research data, which excludes contributions to 401(k)s and other retirement accounts. That sum trails only the first quarters of 2021 and 2022, when they bought about $80 billion. When individual investors’ stock purchases soared in the early days of the pandemic, many predicted the frenzy would die down once stimulus checks ran out and routines returned to normal. Instead, individuals have continued buying, at about five times the rate this year as in 2017 to 2019. Source WSJ

Bed Bath & Beyond Files for Bankruptcy protection and has asked the courts for permission to auction its assets. The struggling home goods retailer has been warning of a potential bankruptcy since early January. The company’s 360 remaining namesake stores will stay open for the time being as it works to liquidate assets. Shares of the company closed at 29 cents last week, giving it a market value of $136.9 million. The stock is down about 88% this year. Last April, it was trading around $20 a share." Source CNBC

Leak At The Bottom Of The Pacific Ocean Has Scientists Worried About ‘The Big One' - A leak at the bottom of the Pacific Ocean around 50 miles off the coast of Oregon is spewing what was originally thought to be water, but a recent paper published in Science Advances suggests it is a warm tectonic lubricant. The liquid has scientists concerned it could fuel “the big one,” a magnitude-9.0 earthquake that would be one of the strongest earthquakes the U.S. has ever seen. It was previously believed the “chemically distinct fluid” was 16 degrees Fahrenheit warmer than the surrounding ocean water, but the paper found the liquid is coming from the Cascadia megathrust, the boundary between two of Earth’s tectonic plates, where temperatures are estimated to be around 300 and 500 degrees Fahrenheit. The fault’s loss of fluid could lower the fluid pressure between the two plates, which can then cause friction, the researchers said in the paper. “If the fluid pressure is lower, the two plates will lock and that’s when stress can build up according to scientists. The fluid allows the plates to glide against each other smoothly, so without it, the plates could lock, creating stress that can result in a magnitude-9.0 earthquake. Source Forbes

Tech Billionaires are Betting on Fusion: Jeff Bezos, Peter Thiel, Bill Gates and Marc Benioff are among those betting that fusion reactors are now within years of being reality. Fusion has long been seen as a clean alternative to fossil fuels. In December, scientists at Lawrence Livermore National Laboratory had a breakthrough when they achieved the first ever net gain, creating more energy than they put in. Fusion, Mr. Benioff added, “has no limits if you can get it to work.” Vinod Khosla, the Sun Microsystems co-founder who was an early investor in private fusion, says that as an investor, he views fusion this way: “Financially either you lose one times your money or you can make a thousand times your money.” The Fusion Industry Association, based in Washington, D.C., has tracked more than $5 billion in private funding, with seven firms raising at least $200 million. Around 75% of fusion fundraising has happened since 2021, according to PitchBook. Achieving fusion is so difficult that firms are developing other products as they test machines. That intellectual property has value independent of fusion, said Adam Rodman, founder of the hedge fund Segra Capital Management. Improvements in large-scale machine learning are also helping to speed experiments. Source WSJ

Japan Has Millions of Country Homes Selling for Just $25,000: With home prices and rents increasingly unaffordable in the US, some Americans are looking for their dream homes abroad. In Japan, a growing portion of the country's housing stock is unoccupied and increasingly attracting American buyers. With the country's population in decline, there simply aren't enough people willing to purchase these houses. The country has at least 8.5 million such "akiya," the Japanese word for unoccupied home, according to government data from 2018. Some experts believe there are as many as 11 million empty houses. Government officials are concerned that growing numbers of akiyas are hurting their efforts to revitalize rural parts of the country. So they're subsidizing renovations and selling homes often for around $25,000, and sometimes for as little as $500.Source Insider

Some US States are Seeing New Record-Low Jobless Rates: A dozen US states saw their unemployment rates fall to a record low last month, according to new data from the Bureau of Labor Statistics. Eighteen states saw a decline in unemployment rates in March, while the rest were essentially unchanged, a BLS report published Friday shows. The biggest declines came in New Hampshire, Oregon and West Virginia, where the rate dropped by 0.3 percentage point in each case. Mississippi, one of the poorest US states, saw a decline of 0.2 percentage point to 3.5%. Among the states posting new record lows for unemployment was Ohio, where the rate fell to 3.8% from 3.9% in February. Unemployment was lowest in South Dakota, Nebraska and North Dakota, with rates close to 2% in each case, and below 3% in populous states such as Wisconsin and Florida Source Bloomberg

Argentina Teeters on the Edge of Deeper Economic Crisis: Argentina's economy will teeter on the edge of a deeper crisis in the run up to October's presidential vote as growing market anxiety adds to a harmful mix of drought-induced recession and skyrocketing inflation, a Reuters poll showed. A flight to the safe-haven U.S. dollar sped up last week after the failure of stopgap efforts to bolster exhausted international reserves rekindled fears about a possible devaluation of the heavily-regulated official exchange rate. Argentina’s central bank increased its benchmark interest rate by +300 basis points last Thursday after annual inflation soared in March and foreign currency reserves slumped. The key Leliq rate rose to 81%, one of the highest monetary policy rates in the world, according to a central bank statement. Argentina also posted a $1.1 billion trade deficit in March, the widest in nearly five years. Agriculture exports fell -34% from a year ago, according to new government data. Argentina is now racing against time to avoid a renewed currency crisis as local investors try to dollarize assets on fears the government will be forced to devalue its currency ahead of presidential elections in October. Source Reuters

How Connected TV Makers Might Win the Streaming Wars: The average U.S. household subscribes to an extraordinary 5.2 video streamers, a stunning +400% jump from just a few years ago. Today, with a surge of more than 100 hundred streamer Apps and counting, streamers are following their TV network ancestors’ trajectory. It’s not a streaming war: It’s a streaming tsunami–and the tidal wave is colossal. There is however a brutal battle raging right now on a digital battlefield few know of. It’s the bruising face-off among connected TVs (CTVs) vying to capture your living room. Internet-connected digital TVs have been thrust into Hollywood’s spotlight as platforms that aggregate, monetize, measure, and distribute the streaming tsunami. According to Leichtman Research Group, “87% of U.S. TV households now own a CTV.” Their products come in two flavors: A smart TV with an operating system or an add-on device with an operating system. Both are hardware-software combos, but it’s always the software that drives the bulk of revenue–and all the eyeballs. The global CTV market was worth $239 billion in 2022 and is forecast to hit $358 billion by 2027. It already eclipses all global theatrical movie, music streaming, and pay-TV markets combined Source Fortune

Auto Dealers Feel the Squeeze: After minting money during much of the pandemic, car sellers are in a tough spot: Between still-high vehicle prices and high interest rates, consumers are struggling to afford new cars. Yet auto makers aren’t offering many incentives to move vehicles off the lots, either. AutoNation said on Thursday that on a same-store basis, it sold -2.8% fewer new vehicles and -17.5% fewer used cars in the first quarter compared with a year earlier. Motors on Wednesday said it sold -6.3% fewer new vehicles and -2.4% fewer used vehicles over the same period. Cars are sitting on lots for longer as a result: Lithia said there were about 52 days of supply of new vehicles in the first quarter, up from 47 days a quarter earlier. AutoNation is carrying 25 days’ worth of new vehicle supply, up from 19 days from the prior quarter. Rising rates aren’t only a problem when it comes to selling cars. With so many more of them idling on lots, rising interest rates are adding up to higher floor plan financing expenses, eroding profits: Lithia Motors and AutoNations’ floor plan interest expenses last quarter were more than five times what they were a year earlier. New car inventory is building and auto makers have started bringing back incentives for buyers. But the shift might not be happening quickly enough to help auto dealers. Source WSJ

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