Major indexes lack solid direction this morning as the market tries to extend a short win streak. Yesterday's SPX close above key resistance could provide technical support, while fresh data is thin and investors assess Disney's results.
Disney shares fall despite earnings beat, streaming profit, as focus zeros in on box office, TV
Lyft, Uber earnings ahead, with ride data likely key ahead of summer demand peak
(Tuesday market open) Wall Street’s trying to extend its win streak Tuesday, but fresh catalysts are relatively scarce. Major indexes were mixed early on, while the benchmark 10-year Treasury note yield continued to forge a path lower.
With major data light this week, investors may focus more on earnings from entertainment heavyweight Walt Disney (DIS) today, along with ride-hailing firm Lyft (LYFT). Lyft’s competitor Uber (UBER) pulls up at the curb Wednesday.
Stocks and Treasuries both enjoyed support Monday from last week’s more dovish Federal Reserve meeting and the jobs report, helping the S&P 500® index (SPX) post its highest close since April 11. One trend to watch is how the Fed’s tone plays out at a higher level. There’ve been times when the Fed starts to sound more optimistic about possibly easing rates and the market reacts by creating easier loan conditions through bidding up Treasuries (yields move the opposite direction).
That, in turn, creates demand that can drive inflation, wages, and job creation, often removing the Fed’s inclination to ease. Debatably, that happened earlier this year when yields fell below 4% and the economy surged, followed by the Fed getting hawkish.
Last week’s data and Fed meeting have the market predicting two rate cuts this year, up from one. But patience remains important.
“The earliest there would be a rate cut is probably July but more likely it will be later,” said Kathy Jones, Schwab’s chief fixed income strategist. “The September and December meetings are in play after the recent jobs report. It all depends on whether there are additional signs of slower growth and lower inflation. Problems in the financial system—perhaps stemming from commercial real estate—could be a motivation as well.”
Futures based on the SPX rose 0.03% shortly before the close of overnight trading and futures based on the Nasdaq-100® (NDX) slipped 0.2%. Futures based on the Dow Jones Industrial Average® ($DJI) inched up 0.05%.
Megas dominate: Though research firm FactSet now expects S&P 500 earnings per share (EPS) growth of 5% in Q1, most of the gains reflect just seven “mega-cap” tech and communication services stocks. Solid results last week from Amazon (AMZN) and Apple (AAPL) reinforced this, and Nvidia (NVDA) reports later this month. Without the mega caps, EPS growth would be roughly flat.
Disney results this morning surpassed expectations on most fronts, including fiscal second-quarter earnings per share (EPS), and the entertainment company also surprised by posting a profit in its streaming business for the first time. In addition, it raised its guidance.
Despite all that, shares tumbled 5% in premarket trading. The stock was up nearly 30% year to date heading into the earnings report, which could mean positive news had already been priced in.
Also, Disney’s traditional TV and movie business was a soft spot, and investors seemed to home in on those metrics in early trading. Profit in streaming was driven by aggressive cost management, Reuters reported, citing an interview with Disney’s chief financial officer.
“We continue to expect our combined streaming business to be profitable in the fourth quarter … with further improvements in profitability in fiscal 2025,” Disney said in its earnings release. Because of what the company called “outperformance” in fiscal Q2, it raised full-year adjusted earnings per share growth to approximately $4.70 from the previous $4.60
Book a ride: Lyft reports after today’s close, followed by Uber tomorrow morning for a one-two punch of ride-hailing firms. Both are entering the seasonally strongest season of the year, Briefing.com noted, while strong demand lifted shares of each so far this year, driven in part by people returning to the office.
As always, booking levels will be in focus, and it might be interesting to hear what executives say about potential competition from Tesla’s (TSLA) “Robotaxi,” which it called a combination of “Uber and Airbnb.” The company is expected to reveal it in August
Stocks on the move:
Cautionary note: The Schwab Trading Activity Index ($STAX) for April showed investment exposure falling during the four-week period ending April 26. That took the STAX score down to 48.87, from 51.65 in March, a reading Schwab would define as “cautious optimism.” It was the first slip in six months. Clients remain selective and discerning with their equity purchases (following profit growth), with the most pronounced buying in four sectors: communication services, consumer discretionary, health care, and information technology. The month also featured substantial fixed income inflows, while selling was most pronounced in energy, financials, utilities, and staples.
Hot and not: Among popular stocks, Schwab clients were net buyers of AI specialist chipmakers Nvidia, Advanced Micro Devices (AMD), and Super Micro Computer (SMCI). Popular names that were net sold by Schwab clients included Walt Disney, PayPal (PYPL), and Exxon Mobil (XOM). Despite the stock performance during the period, AI-themed trading ideas don’t show signs of slowing, and clients used pullbacks and corrections as favorable entry points. The STAX is a proprietary, behavior-based index designed to indicate the sentiment of retail investors.
Credit, auctions, crude: The March Consumer Credit report bows at 3 p.m. ET, and the Briefing.com consensus projects a rise of $15.3 billion. That compares with a $14.1 billion increase in February. The key number is revolving credit, which includes credit cards and formed the vast majority of February’s rise. It increased at an annual rate of 10.2%.
A $58 billion 3-year Treasury note auction is also in focus, with results expected to be out early this afternoon. The 2-year Treasury note yield crept up this morning even as the 10-year fell.
Only one Fed speaker talks today in a week packed with about a dozen Fed speeches. Any insight from central bank policy makers on last week’s jobs data and what it might mean for rates will likely have investors’ ears.
Tomorrow morning keep an eye out for weekly U.S. crude oil inventories, which surprised the market last week with a sharp increase of more than 7 million barrels that helped send domestic crude prices to seven-week lows
Green shoots abroad: Global economic growth could become better balanced this year, with potential positive impacts on international stocks. “Global growth is resilient, with the worst of the global manufacturing recession in the past,” said Michelle Gibley, director of international research at the Schwab Center for Financial Research.
“We are seeing green shoots in Europe and China, offsetting the potential for some cooling in the U.S. as the year progresses,” Gibley added. “The Global Manufacturing Purchasing Managers’ Index rose back into expansion to start the year. Services remains strong and is propelling global growth. This could be positive for cyclical sectors such as materials, industrials, and financials, which have large weights in international indexes.”
Caution at home: Lenders remained reluctant to provide businesses and households credit in the first quarter, according to yesterday’s April Senior Loan Officer Opinion Survey on Bank Lending Practices from the Fed.
“For loans to businesses, survey respondents reported on balance, tighter standards and weaker demand for commercial and industrial loans to firms of all sizes,” the Fed said. “For loans to households, banks reported that lending standards tightened across some categories of residential real estate loans while remaining unchanged for others on balance.”
Also, demand weakened for all residential real estate loan categories. The report could suggest underlying softness in the economy, but markets didn’t appear to respond much in Monday’s afternoon trading.
Monday in review:
The SPX enjoyed a third straight stronger trading session Monday, posting its highest close in almost four weeks. The Nasdaq Composite® ($COMP) also neared a four-week high. Semiconductors rallied behind Micron (MU), whose shares rallied 4.7% after Baird upgraded the chipmaker to “outperform” from “neutral.”
Micron was the top gainer in the PHLX Semiconductor Index (SOX), which advanced 2.2% to near a four-week high. Small-cap stocks also got out of the gate strong. The Russell 2000® Index (RUT) gained 1.2% to end at a four-week high but is still up just 1.7% for the year. The SPX, by contrast, is now up 8.3% year to date.
Early today, futures traders place 9% chances of a 25-basis-point rate cut at the Federal Open Market Committee’s (FOMC’s) June 11–12 meeting, rising to roughly 31% for the late-July meeting, based on the CME FedWatch Tool. The market prices in a 90% chance of at least one cut by the end of the year and around 60% chances of two or more.
Straight ahead: Every week, be sure to check the Weekly Market Outlook with Jeffrey Kleintop, Schwab’s chief global investment strategist. In just 90 seconds, you can learn what he’s focusing on over the next few days.
CHART OF THE DAY: HOUSE PARTY. The homebuilders sector (S&P Homebuilders Select Industry Index-candlesticks) has lagged the S&P 500 Index (SPX-purple line) year to date in part due to rising interest rates, but got a nice boost over the last week thanks in part to bullish economic data. Home building companies have sounded upbeat on recent earnings reports, emphasizing the shortage of U.S. homes. Data source: S&P Dow Jones Indices.Chart source: thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results.
Ideas to mull as you trade or invest
Talking technicals: The SPX pushed above its 50-day simple moving average (SMA) of 5,130 yesterday, finishing at 5,177. It’s now just 1.4% below the all-time peak close of 5,254 registered March 28. Monday’s close topping the 50-day SMA was constructive on the charts, but it would likely take more than one day above that to help confirm positive sentiment has truly taken hold. The all-time high close would probably pose resistance on any upside run.
Home fires: If a single sector benefitted the most from last week’s falling Treasury yields, it’s arguably the home builders. While the sector almost managed to keep pace with the broader market’s rally since the start of the year, a cloud hung over it and seemed to darken with each new inflationary data point. Rising Treasury yields sent the average 30-year mortgage rate back above 7% this spring, and both housing starts and building permits plummeted in March. Despite all the headwinds, home building company executives mainly sounded upbeat on recent earnings calls, and it could be evidence of a bifurcated economy in which those wealthy enough to buy new homes (with an average cost of well over $400,000) may be somewhat buffered from the tough interest rate environment.
Supply creates demand: The most recent major home builder to report was PulteGroup (PHM) in late April. While higher rates have hurt demand for first-time buyers of its entry-level homes, PulteGroup’s CEO said that the impact hasn’t been too heavy yet. “After more than a decade of underbuilding, it is estimated that our country has a structural shortage of several million homes,” CEO Ryan Marshall said in the company’s April 23 earnings release. “We are well positioned to expand our market share while helping to provide much needed new housing stock.” Home closings increased 11% in the first-quarter of 2024, PulteGroup said. High-end home builder Toll Brothers (TOL) is expected to report May 21, while next week brings April housing starts and building permits.
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.
May 14: April Producer Price Index (PPI) and core PPI, and expected earnings from Home Depot (HD), and Alibaba (BABA).
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