(Monday market open) Even after a weekend of thrilling races and Cinco de Mayo celebrations, Wall Street’s still buzzing over Friday’s “Goldilocks” April Nonfarm Payrolls report. The data gave major indexes and Treasuries another boost this morning in premarket trading and lent a hand to overseas markets.

Like a golf drive straight down the fairway far from sand and trees, Friday’s report showing jobs growth of 175,000 and wages up 0.2% provided the ideal setup to soothe inflation concerns. It also reinforced last week’s Federal Reserve message that rate cuts could still happen this year, and the market now prices in the strong likelihood of at least two. The report was in perfect “not too hot and not too cold” territory, showing an economy that continues to grow, but perhaps more sustainably and with less concern about price pressure.

However, it’s just one set of numbers and there’s a risk that the market may overreact. The Fed would probably want to see several similar reports along with supportive inflation readings before making any decisions about a rate cut. The May jobs report, due in early June, could become key because it’s the last before the central bank issues its next round of rate projections in mid-June.

Ahead of that, readings on April consumer and producer prices loom next week, but this week is a bit light on major economic data. Instead, investors may focus more on earnings from entertainment heavyweight Walt Disney (DIS) due early Tuesday following big data firm Palantir (PLTR) later today. Ride-hailing picks up with Lyft (LYFT) tomorrow and Uber (UBER) on Wednesday. Over the weekend Berkshire Hathaway (BRK.A) reported an impressive quarter and enjoyed light gains in premarket action.

Treasury yields are under the microscope again after last week’s slide eased pressure on equities, which had their second straight winning week. And from a technical standpoint, the S&P 500® index (SPX) closed Friday just two ticks below the 50-day moving average at just above 5,129. A solid move above that would likely signal more chart strength, but Friday’s failure suggests lack of enthusiasm to test higher levels. The SPX hasn’t closed above the 50-day in nearly a month.

“A close below this indicator or failure to reclaim it early this week has the potential to sour investor sentiment, at least technically speaking,” said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

Futures based on the SPX climbed 0.4% shortly before the close of overnight trading and futures based on the Nasdaq-100® (NDX) gained 0.35%. Futures based on the Dow Jones Industrial Average® ($DJI) rose 0.4%.

Morning rush

• The 10-year U.S. Treasury yield (TNX) slipped two basis points to 4.47%.
• The U.S. Dollar Index ($DXY) inched lower to 105.07.
• The Cboe Volatility Index® (VIX) climbed slightly to 13.75.
• WTI Crude Oil (/CL) was up 0.8% at $78.74 a barrel, still near seven-week lows.
• Bitcoin (BTC) fell 0.7% to $63,450.

Just in

Jobs report redux: One quick takeaway from the jobs report was a sudden bump in chances for two Fed rate cuts this year rather than just one. Many analysts had predicted two even before the report, but the market had started pointing toward higher odds of just a single cut. That changed within minutes of the data.

The wages rise of just 3.9% year over year conceivably played as much into the increased chance of rate cuts as the jobs data itself. When wage increases slow, it can dampen consumer spending.  

“The jobs report was good news for the Fed, but one report doesn’t necessarily represent a trend,” said Collin Martin, director, fixed income strategy at Schwab. “We still expect the Fed to cut rates this year (we thought that even before the report), but Fed officials will want to see actual inflation readings decline, not just expectations.”

Stocks in spotlight

Earnings scorecard: S&P 500 earnings keep looking brighter, which is good news for Wall Street. Strong results from major firms like Apple (AAPL), Amgen (AMGN), and Amazon (AMZN) last week pushed research firm FactSet’s estimate for first-quarter earnings per share (EPS) growth to 5%, up from 3.4% a week earlier. About 80% of S&P 500 companies have reported so far, and 77% have reported a positive EPS surprise. Only 61% have exceeded revenue expectations, however.

In another positive sign, net profit margins have averaged 11.7%, up from 11.2% in Q4 and above the five-year average of 11.5%, FactSet said. And the number of companies issuing negative Q2 quarterly guidance is also below average. Analysts now expect 9.6% EPS growth in Q2 and 11% for the full year.

Disney at the gate: The “House of Mouse” marches down Main Street first thing tomorrow following a revival for shares so far this year. The fireworks correlated roughly with Disney’s fiscal Q1 earnings report in February when the company posted narrower-than-expected losses in its streaming video business. That category and the level of Q1 losses there could again be top of mind Tuesday morning.

Disney shares rallied off its Q1 earnings, drawing additional investor enthusiasm from raised guidance and an update on cost-cutting plans. The company guided for fiscal 2024 earnings per share of $4.60, so we’ll learn tomorrow if that’s changing. Streaming subscribers fell more than a million in fiscal Q1, but subscription price hikes led to higher revenue per user, another metric to follow.

Since Disney last reported, the company prevailed in a proxy battle with activist investor Nelson Peltz, who was trying to claim two seats on Disney’s board of directors. One thing Peltz criticized Disney for was lack of clarity around succession plans. CEO Bob Iger’s contract ends in 2026, so it would be surprising to hear much fresh color on that issue tomorrow. But Iger might stress the cost cutting efforts, which addressed another Peltz complaint. Another thing to watch is any sign of Disney hinting at spin-offs.

Stocks on the move:

• Berkshire Hathaway climbed 1% in premarket trading after the conglomerate reported a solid quarter buttressed by its insurance business and investment income. Berkshire also announced it had cut holdings of Apple by about 13%, which would mean it still owns nearly 800 million shares, Barron’s reported.
• Shares of Advanced Micro Devices (AMD) popped 2% early Monday, and Nvidia (NVDA) and Micron (MU) also marched ahead as general positive market sentiment appeared to show up in the chip sector. An upgrade to Micron might also be boosting shares.
• Palantir climbed 3% ahead of the open. The firm reports after the close, with its AI initiatives in focus.

What to watch

This afternoon features the Fed’s quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices. This once-obscure report marched to the front of the pack last year amid several high-profile bank failures led to concerns about a possible credit crunch. The crunch hasn’t happened yet, but many smaller banks continue to struggle amid high interest rates and weak small business and consumer confidence.

The survey, due at 2 p.m. ET, is important because it shows how much enthusiasm loan officers have for making loans to businesses and households. The previous survey from Q4 showed tightening lending standards and weaker demand for commercial and industrial loans of all sizes, as well as for commercial real estate loans. It also showed tighter lending standards on residential real estate and home equity lines of credit.

With inflation stubborn and the Fed holding rates high throughout Q1, it’s likely today’s quarterly survey will show continued caution from banks. Today also features two Fed speakers and two Treasury auctions, all taking place roughly around midday. The Fed speaker circuit is busy this week, so it could be interesting to see if the recent hawkishness softens following the Fed meeting and jobs data.

Week ahead: There’s a dearth of major economic data early this week aside from the loan officer survey today. The Consumer Credit report tomorrow is one to watch for with rates remaining high. Besides Palantir, Disney and the ride sharing firms, earnings also die down quite a bit now that almost all the mega caps have reported. Nvidia looms later this month.

Friday in review:

Technology shares were among the strongest performers Friday behind a 6% rally in shares of Apple, which late Thursday reported stronger-than-expected quarterly results and said it will repurchase $110 billion in shares. Amgen (AMGN) soared nearly 12%, leading $DJI gainers after the biotechnology company beat earnings expectations and announced progress on a weight-loss drug.

Talking technicals: As noted above, the SPX’s rally toward the 50-day simple moving average (SMA) last week and its failure to pierce that indicator would historically indicate bearish sentiment in control. However, the jobs data, along with last week’s meaningful drop in bond yields (10-year yields hit the lowest levels since April 11), has shifted near-term sentiment in favor in the bulls, Schwab’s Peterson said. Separately, last week saw a modest expansion in breadth (the percentage of stocks trading above long-term moving averages) in the Nasdaq Composite® ($COMP) and Russell 2000® (RUT), a positive development.          

Eye on the Fed

Early today, futures traders place 8% chances of a 25-basis-point rate cut at the Federal Open Market Committee’s (FOMC’s) June 11–12 meeting, rising to roughly 35% for the late-July meeting, based on the CME FedWatch Tool. By the end of the year, chances of at least one rate cut are priced in at 92%, with chances for more than one cut above 60%.

Fed’s impact: Check the latest episode of OnInvesting, in which Liz Ann Sonders, Schwab’s chief investment strategist, and Kathy Jones, chief fixed income strategist, discuss last week’s Fed meeting and possible implications. They also look at coming indicators and economic data.

Thinking cap

Ideas to mull as you trade or invest

Crude watch: It’s the time of year when U.S. crude oil demand usually spikes as refineries make gasoline for the summer driving season. While front-month crude futures rebounded slightly from seven-week lows below $80 per barrel Friday, they remain well under their 2024 peak above $87, partly due to a surprising lack of seasonal U.S. demand. Current crude stocks are the highest for this time of year since 2021, according to the U.S. Energy Information Administration (EIA), and the amount of finished U.S. motor gasoline supply suggests lighter-than-normal use. Back in April 2019, before COVID-19, average daily motor gasoline supplies for the month were 9.466 million barrels. By comparison, daily supplies in April 2024 averaged 8.579 million barrels. That’s a 9% drop, and it’s not a one-year anomaly. Last April also averaged well under 9 million barrels.

More “bad is good”: The jobs report wasn’t the only Friday data driving up rate cut hopes. The April ISM Services PMI® headline of 49.4% was well under Briefing.com expectations of 51.8%, falling under the 50% level that signals contraction or expansion. It was the first non-expansionary ISM Services number since December 2022, and while it was just one month, could hint that the sizzling services sector is quieting down. If that’s the case, it could mean relief from fast-rising prices for everything from restaurant meals to insurance to concert tickets. “The services index is arguably more important than the manufacturing index given the makeup of the overall the economy, so the headline drop below 50 throws some cold water on growth prospects,” Schwab’s Martin said. “The prices paid index rose, but it’s still relatively close to where it was pre-pandemic.”

Inversion eases: The so-called 2/10 yield spread, which has been inverted for well over a year, narrowed slightly last week as the rate-sensitive U.S. 2-year Treasury note yield lost more ground than the 10-year yield. Losses were heavy for both, however, with the 10-year down 17 basis points on the week. An inversion historically can suggest recession ahead, but it’s been sending that signal for so long now it may be getting a “boy who cried wolf” reputation.

Calendar

May 7: Expected earnings from Disney (DIS), Lyft (LYFT), and McKesson (MCK).

May 8: March wholesale inventories and expected earnings from Airbnb (ABNB) and Uber (UBER).

May 9: Expected earnings from Hyatt Hotels (H) and Warner Bros. Discovery (WBD).

May 10: University of Michigan preliminary May Consumer Sentiment.

May 13: No major earnings or data expected.