(Bloomberg) — Stocks rebounded from a $2 trillion decline as Corporate America began its busiest week of reporting first-quarter results, which are key in shaping the outlook for stocks.
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Roughly 180 companies, representing more than 40% of the S&P 500 companies by market capitalization, were scheduled to announce their earnings results this week. But the biggest hope is for the Magnificent Seven mega-cap stocks, whose profits are expected to rise 38% year over year, according to Bloomberg Intelligence. The focus on earnings suggests the U.S. Federal Reserve is in no hurry to cut interest rates after a decline triggered by geopolitical unrest.
“Right now, revenue is moving to the forefront,” said Matt Maley of Miller Tabak. “If the stock market performs well, we will need sufficient guidance to significantly raise consensus estimates for both 2024 and 2025.” They will bounce back in a big way. ”
Equity strategists at big Wall Street banks are divided over whether companies can meet solid earnings forecasts. Michael Wilson of Morgan Stanley expects profit growth to improve as the economy strengthens, but his counterpart at JPMorgan Chase, Mislav Matejka, expects higher inflation, a stronger dollar and geopolitics. They argue that tensions are clouding the outlook.
Nearly two-thirds of 409 respondents in Bloomberg’s latest Markets Live Pulse survey said they expected the gains to boost U.S. stock benchmarks. This is the highest vote of confidence in corporate earnings since the poll began asking the question in October 2022.
The S&P 500 rose to 4,990 after six days of declines, with the index approaching “oversold” territory. Nvidia Inc. led the rally among big tech stocks. Apple has been named Bank of America’s top pick for 2024 due to optimism about the iPhone maker’s future performance. Britain’s FTSE 100 index closed at a record high for the first time in more than a year.
U.S. Treasuries reeled ahead of a flurry of bond auctions this week that will test investor appetite as yields hit a 2024 high.
This week’s U.S. earnings update will be key to determining whether risk appetite can continue to rise in the long-term interest rate environment, according to BlackRock Investment Research’s weekly commentary. “We are overweight U.S. equities and see the AI theme expanding,” the firm said.
“Concerns about rising interest rates, stubborn inflation and geopolitical risks are not going anywhere, but this week could be the technology sector that decides the game,” said Chris Larkin of Morgan Stanley’s E*Trade. .
Hedge funds are shrugging off broad market volatility and returning to buying global stocks, snapping up tech stocks at the fastest pace in the past two months, according to Goldman Sachs Group Inc.’s trading desk.
Last week, new long positions outnumbered short sales, individual stocks saw “the largest nominal buying in a year,” and sentiment turned bullish after hedge funds had been selling for the past three weeks. The traders wrote about this in their notes.
U.S. stocks are supported by company fundamentals, but implicit growth expectations and rising sentiment are currently acting as headwinds, according to Citigroup strategists.
Scott Kronert and his team said their analysis predicts there is a 76% chance that first-quarter earnings will beat the bottom-up consensus. However, the chance of earnings upside for the remainder of 2024 has fallen to 49%, suggesting the company may be reluctant to raise its earnings outlook.
Big tech companies are losing momentum as the industry once enjoyed a decline in earnings momentum, according to UBS Group AG’s chief U.S. equity strategist.
Ahead of this week’s earnings, UBS downgraded its sector recommendation for the “Big Six” technology stocks of Alphabet Inc., Apple Inc., Amazon.com Inc., Meta Platforms Inc., Microsoft Inc. and Nvidia Inc. from Neutral to Neutral. . Overweight.
“Earnings momentum is clearly turning negative following rapid earnings growth,” said UBS’s Jonathan Golub.
Coastal Wealth’s Jeremy Straub says this week is important for the market, with a big tech earnings call and important inflation data on Friday that could redefine the market’s near-term trajectory.
“If big tech earnings and Friday’s inflation numbers disappoint, the duration and depth of the current stock market correction could be extended,” he said. “While there may be room for further declines in the stock market, we remain positive on stocks in 2024.”
Company highlights:
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Verizon Communications beat analysts’ profit estimates as it contained losses in consumer wireless customers and more people opted for premium plans.
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Trust Financial Corp.’s first-quarter lending profit was lower than analysts expected as interest rates remained high and customers had to pay for their deposits, and the bank lowered its earnings outlook for the rest of the year. .
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Informatica said it is not in acquisition talks, following reports that talks with Salesforce have cooled down.
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Kroger Co. and Albertsons Co. have agreed to sell more stores to C&S Wholesale Grocers, making their planned $24.6 billion merger more attractive to antitrust regulators. .
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Viking Holdings Inc. and its existing shareholders are aiming to raise up to $1.1 billion in a New York initial public offering, with the cruise company aiming to go public as the travel industry recovers from a pandemic-era downturn.
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ASML Holding NV is considering options to expand its presence in the Netherlands after the government pledged 2.5 billion euros ($2.7 billion) in infrastructure and education spending in the region where the company is headquartered.
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Tesla’s move over the weekend to cut prices on all its products in China risks triggering a new round in the country’s fierce price war, with Li Auto quickly responding with discounts and cash rebates on new models.
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Billionaire Mukesh Ambani’s Reliance Industries posted a weaker-than-expected quarterly profit as continued weakness in its petrochemicals business and higher taxes offset growth in its consumer division and a strong increase in other income. .
This week’s main events:
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Eurozone S&P Global Manufacturing PMI, S&P Global Services PMI, Tuesday
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U.S. new home sales Tuesday
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Tesla, PepsiCo earnings results Tuesday
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BOE Chief Economist Hugh Pill speaks on Tuesday
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Germany IFO Business Environment, Wednesday
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US Durable Goods Wednesday
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IBM, Boeing, Metaplatform earnings Wednesday
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US GDP, wholesale inventories, new unemployment claims, Thursday
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Microsoft, Alphabet, Airbus earnings Thursday
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Japanese interest rate decision, Tokyo CPI, inflation and GDP forecast, Friday
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US Personal Income and Expenditures, PCE Deflator, University of Michigan Consumer Sentiment, Friday
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ExxonMobil, Chevron earnings, Friday
The main movements in the market are:
stock
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As of 12:33 p.m. New York time, the S&P 500 was up 0.4%.
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Nasdaq 100 rose 0.4%
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The Dow Jones Industrial Average rose 0.4%.
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MSCI World Index rose 0.5%
currency
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Bloomberg Dollar Spot Index little changed
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The euro was almost unchanged at $1.0649.
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The British pound fell 0.2% to $1.2344.
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The Japanese yen fell 0.1% to 154.81 yen to the dollar.
cryptocurrency
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Bitcoin rose 2.3% to $66,144.57.
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Ether rose 1% to $3,182.04
bond
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The 10-year government bond yield was almost unchanged at 4.62%.
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Germany’s 10-year bond yield fell by 1 basis point to 2.49%.
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UK 10-year bond yields fell 2 basis points to 4.20%.
merchandise
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West Texas Intermediate crude oil is little changed.
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Spot gold fell 2.5% to $2,332.60 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Jessica Mentone, Ryan Vlastelica, Aleksandra Semenova, Sagarika Jaisingani, Kasia Klimasinska, Jean-Patrick Barnato, and Elena Popina.
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