Last Week
On the cover of the most recent Barron’s is a picture of a lone bull in a grassy field with the caption “Where Did the Bulls Go?” (Bob Dylan might answer that question if he wrote a song about the stock market.) The cover story highlights that the percentage of bears in their Big Money poll is the largest in almost 30 years. That bearishness was supported by some economic data during the week that reflected the impact of tariffs, most notably the first quarterly contraction in U.S. GDP since the start of 2022. On the other hand, the Labor Department reported Friday that 177,000 new jobs were added in April, comfortably above the estimated gain of 133,000 jobs. Additionally, quarterly earnings reports were solid, and there was some positive rhetoric on tariffs and trade, including signs that U.S. and China relations were thawing. As a result, that lonely bull enjoyed a strong market, with the S&P 500 rising every day, extending its longest winning streak in over 20 years to nine consecutive days.
In terms of earnings, Microsoft (MSFT) and Meta (META) delivered terrific results and upbeat guidance, while the potential impact of tariffs on Apple (AAPL) and Amazon (AMZN) raised concerns. Overall, earnings season has been very strong with composite earnings growth now on track to be 12.8% versus the forecast of 7.2% at the end of March. Estimates for second-quarter earnings have been slipping, but not dramatically more than the average estimate reductions for the upcoming quarter. Due to the shifting policy landscape, many companies have withdrawn guidance for the year.
The yield on the 10-year Treasury inched up five basis points to 4.32%, with the dollar rising, gold slipping, and oil moving sharply lower. The Oil & Gas sector was the only equity group down for the week. Telecommunications, Technology, Industrials, and Financials were the leading sectors, while advancing issues outnumbered decliners by a factor of more than 2.5-1.
The Nasdaq Composite climbed 3.4%, the Russell 2000 gained 3.2%, and the S&P 500 was 2.9% in the green.
The Ivy in Wrigley Field is also turning green, as the Cubs continue holding first place in the NL Central Division.
This Week
We enter the final innings of earnings season with 92 S&P 500 companies reporting results for the first quarter.
On Wednesday, the FOMC will announce its monetary policy decision. The overwhelming consensus is for federal funds rates to remain at the current 4.25%- 4.5% range. Chair Jerome Powell is in a difficult position, trying to balance signs of softening in the economy with the uncertainty surrounding tariffs and their potential inflationary impact. We would not be surprised to hear a dovish pivot, if not a rate cut.
The economic calendar will see readings on the U.S. services sector and the trade deficit.
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