As the legendary investor Warren Buffett once said, “The stock market is a device for transferring money from the impatient to the patient.” This week, patience seemed to be the key as the major indices settled with gains despite mixed earnings news and market-moving economic releases. The Russell 2000 even turned positive for the year following a 1.7% gain since last Friday.
I noticed that gains in the mega cap space had an outsized influence on index performance this week. The Vanguard Mega Cap Growth ETF (MGK) logged a 1.3% gain versus a 0.6% in the market-cap weighted S&P 500. Meanwhile, the equal-weighted S&P 500 registered a mere 0.2% gain. Standout winners in the mega cap space included Apple (AAPL) and Amazon.com (AMZN), which gained 8.3% and 3.7% respectively following pleasing earnings and outlooks.
Market participants also digested mixed economic releases, including the Employment Cost Index for Q1, which reflected a 1.2% increase in compensation costs versus expectations for a 1.0% increase. This report piled onto emerging worries about sticky inflation and the Fed pushing back its rate cut timeline.
However, Fed Chair Powell calmed some of those fears during his press conference, stating that it was “unlikely that the next policy rate move will be a hike.”
US Market Highlights
- The FOMC held interest rates at a 23-year high, noting a ‘lack of further progress’ on inflation. They did slow the pace of quantitative tightening by reducing Treasury runoff from $60 billion to $25 billion per month.
- U.S. services and manufacturing activity both contracted last month, with ISM’s manufacturing PMI slipping to 49.2% and services PMI falling to 49.4%.
- U.S. payrolls increased just 175,000 in April as the unemployment rate rose to 3.9%. Average hourly earnings increased less than expected, an encouraging sign for inflation.
- Boeing tapped debt markets to raise $10 billion as it burned nearly $4 billion in free cash flow last quarter amid its 737 MAX 9 crisis.
- Peloton announced layoffs for 15% of staff and CEO stepping down after just two years. $PTON shares are down 98% from their peak.
Global Highlights
- Turkey halted all trade with Israel over the ongoing conflict in the Middle East. Trade between the two countries was worth $6.8 billion in 2023.
- Bank of Japan intervened in forex markets to prop up the Yen against the U.S. Dollar, likely spending ¥3.5 trillion ($22.5 billion).
- G7 eyes new $50 billion funding for Ukraine in a plan that would use profits from frozen Russian assets to repay the aid.
- Inflation in Europe held steady at 2.4% in April, keeping the June rate cut on the table. Eurozone economy returned to growth, speeding out of recession as GDP rose faster than expected at 0.3%.
- China’s factory activity expanded at the fastest pace in 14 months as the Caixin manufacturing PMI rose to 51.4 in April. China also hinted at property support and rate cuts as part of a new plan to rekindle growth.
Investor Takeaways
Despite the somewhat mixed action, I believe there are reasons for optimism. The weak April employment report reduced concerns about a potential rate hike while not inviting worries about the state of the labor market. Treasury yields settled lower in response, acting as support for equities.
As we move forward, I’ll be keeping a close eye on the S&P 500 and Nasdaq Composite as they approach their respective 50-day moving averages. Technical indicators like these can provide valuable insights into market sentiment and potential turning points.
Commodities
Energy
Oil prices took a significant step backward this week, with North Sea Brent trading at around $84 a barrel and US WTI at $79 a barrel. The risk premium linked to geopolitical friction is diminishing, and the latest US inventory data weighed on the trend.
Metals
Copper is catching its breath after hitting the $10,000 a tonne mark in London. Like oil, copper and industrial metals prices remain dependent on the Federal Reserve’s monetary policy.
Gold is down for the second week, running at $2300, but short-term price weakness masks the appetite of central banks, which continue to buy gold.
Calendar & Movers
Looking ahead to next week, Wall Street can expect a slight reprieve as both the economic calendar and the first-quarter earnings season lighten up somewhat. However, there are still a few key events and reports to keep an eye on.
- Monday: The Federal Reserve will release its senior loan officer opinion survey, providing valuable insights into credit conditions in the economy.
- Tuesday:
- Tech giant Apple (AAPL) is scheduled to hold a special event showcasing new iPad products and hardware accessories. This event could generate buzz and potentially impact the company’s stock performance.
- The Consumer Credit report for April will be released, offering insights into consumer borrowing and spending patterns.
- Thursday: The weekly Initial Jobless Claims data will be published, providing a timely gauge of the labor market’s health.
- Friday: The University of Michigan will release its preliminary consumer sentiment data for May, offering a gauge of consumer confidence and economic expectations.
On the earnings front, while many major companies, including the “Magnificent 7,” have already reported their results, there are still a few notable names on tap for next week:
- Disney (DIS), the theme park and entertainment giant, will report its earnings. Investors will be keen to see how the company’s various business segments, such as streaming and theme parks, have performed.
- Tyson Foods (TSN), a major meat processor, will also release its results, providing insights into the food industry and consumer demand trends.
- Uber (UBER), the ride-hailing behemoth, is another company to watch as it reports its earnings. The company’s performance could shed light on the state of the gig economy and consumer spending patterns.
As always, I recommend staying attuned to these upcoming events and reports, as they can provide valuable information for making informed investment decisions. However, it’s crucial to maintain a long-term perspective and not overreact to short-term market movements.
