Broken Records: Stocks Cap Strong Week Fueled by Rate Hopes

The S&P 500 index is capping a record-breaking week propelled by confidence the Fed will lower benchmark interest rates.

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Key Takeaways

  • Numerous economic reports expected next week, including GDP and PCE

  • FedEx shares surging after reporting stronger-than-expected earnings

  • Another pricey summer grilling season ahead for beef lovers

(Friday market open) The S&P 500® index (SPX) and other equity benchmarks are heading for a softer open Friday but are still on track for a strong week marked by a string of record highs fueled by rejuvenated hopes for lower interest rates.

Futures based on the SPX were down 0.2% shortly before the close of overnight trading and futures based on the Nasdaq-100® (NDX) fell 0.3%. Futures based on the Dow Jones Industrial Average® ($DJI) eased 0.1%.

There are no major economic or earnings reports expected Friday, which will give investors a chance to catch their breath after an eventful week that saw the S&P 500 index chalk up its 20th record high close of the year.

The market heads into the final week of the first quarter buoyed by optimism over the economy and renewed confidence the Federal Reserve will embark on a rate-cutting cycle later this year. Next week will be shortened by the Good Friday holiday.

Those hopes were boosted by results from the Federal Open Market Committee (FOMC) meeting earlier this week. The FOMC elected to hold its benchmark funds rate unchanged, as expected, while also maintaining its dot-plot projection that suggested it will make three quarter-point cuts by the end of this year.

FedEx (FDX) shares surged in premarket trading after the shipping giant reported earnings late Thursday that topped expectations. Nike (NKE) shares reversed an initial post-earnings upswing late Thursday and remained lower in premarket trading, despite beating Wall Street’s earnings and revenue expectations for the previous quarter. Shares of lululemon athletica (LULU) tumbled after the company issued disappointing guidance.

Morning rush

  • The 10-year U.S. Treasury yield (TNX) was down over five basis points at 4.22%.
  • The U.S. Dollar Index ($DXY) was up 0.3% at 104.27.
  • The CBOE Volatility Index® (VIX) was up 0.20 at 13.12.
  • WTI Crude Oil (/CL) was up $0.12 at $81.19.
  • Bitcoin (/BTC) was down over 4% at $64,524.

What to watch

Next week brings several economic readings that could influence interest rate expectations and market direction, including the Census Bureau’s Durable Goods report for February and the Conference Board’s Consumer Confidence update for March. Both are scheduled for release Tuesday.

The government’s final estimate for fourth-quarter Gross Domestic Product (GDP) and the University of Michigan’s final Index of Consumer Sentiment for March both land Thursday.

Next Friday, when markets will be closed, the Bureau of Economic Analysis reports its Personal Consumption Expenditures Price Index (PCE) for March. The PCE, the Fed’s favored inflation gauge, is sure to be of keen interest after both the Consumer Price Index and the Producer Price Index (PPI) stoked inflation concerns earlier this month.

Overall PCE rose 0.3% in January over December, while core PCE, which removes food and energy, rose 0.4%. Both matched analysts’ expectations. Compared to year-earlier levels, core PCE eased to 2.8%, down from 2.9% in December and the lowest annual rise since March 2021.

Stocks in spotlight

FedEx reported adjusted earnings of $3.86 per share, blowing past the average analyst estimate by around $0.30, but revenue of $21.7 billion fell short of expectations. FedEx also announced a $5 billion share buyback.

Nike’s quarterly results were boosted by stronger-than-expected North American growth, though sales in China continued to slip. The company earned $0.77 per share, about $0.03 higher than expected, on revenue of $12.43 billion, about 1.2% higher than expected.

Late Thursday, lululemon released earnings that exceeded analyst expectations, but shares came under pressure after the company’s guidance was weaker than expected. The company earned $5.29 per share, about $0.30 above expectations, on revenue of $3.21 billion

Tesla (TSLA) dropped over 3% in the premarket after Bloomberg News reported the electric vehicle maker had reduced production in China as sales slowed.

Semiconductors continued to grab headlines this week while reasserting upside leadership in the market. Micron Technology (MU) is poised to gain 18% this week after reporting stronger than expected results two days ago.

On Monday, Nvidia (NVDA) CEO Jensen Huang announced a new generation of AI chips at his company’s GTC conference, which helped to lift the chip leader’s shares over 4% so far this week. Nvidia shares are up almost 85% year to date, tops among 30 companies in the PHLX Semiconductor Index (SOX).

Reddit (RDDT) shares fell more than 4% in premarket trading a day after the online platform’s IPO received a robust reception. The stock jumped over 48% on the stock’s first day of trading.

Earnings season is largely complete, though next week will trickle out results from a few major companies.

Cruise operator Carnival (CCL) is expected to report quarterly earnings Wednesday. Pharmacy chain Walgreens Boots Alliance (WBA), which was recently removed from the Dow industrials, is expected to report results Thursday.

Thursday in review:

Stocks extended Wednesday’s post-FOMC rally to notch another round of record or multiyear highs. The S&P 500 index added 0.3% to 5,241.53; the Dow Jones Industrial Average gained 0.7% to 39,781.37, and the Nasdaq Composite rose 0.2% to 16,401.84. The small-cap Russell 2000® Index (RUT) added 1.1% and closed at a two-year high.

The S&P 500 index has gained almost 10% in 2024, and its 20 record closes so far this year rank as the sixth most for a first quarter since World War II, according to Sam Stovall, chief investment strategist at CFRA. In both 2013 and 1998, the index posted 25 record closes in the first quarter.

Eye on the Fed 

Early today, futures traders pegged 94% odds the FOMC will keep rates unchanged following its April 30 to May 1 meeting, according to the CME FedWatch Tool. Chances of a quarter-point rate cut following the FOMC meeting in June have surged to 69% from 55% a week ago, based on the FedWatch tool.

CHART OF THE DAY: STEAKS ARE HIGH: Live cattle futures (/LE—candlesticks) have risen sharply from December lows (yellow arrow) and in mid-March reached a record high above $1.90 per pound (yellow circle, upper right). Tight animal supplies are expected to keep cattle prices historically high all year, meaning that with summer grilling season ahead, beef lovers should be prepared to pay up at the supermarket meat counter. Read more below. Data source: CME Group. Chart source: thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results. 

Thinking cap

Ideas to mull as you trade or invest

Ready to grill out? Fork it over: Summer grilling season is just around the corner, and as has been the case for a few years, it’s going to be a pricey endeavor for beef lovers. Live cattle futures (/LE) are up about 16% over the past year and earlier in March climbed to a record above $1.90 per pound. Cattle prices are expected to remain historically high all year, reflecting persistent drought in Plains cattle country and a beef cow herd that’s shrunk to its smallest since the early 1960s. High animal costs are passed along the supply chain and end up at the supermarket meat counter. Retail lean ground beef averaged $6.65 per pound in February, up 3.5% from a year earlier, according to the Agriculture Department, and likely will rise further. Last summer, ground beef averaged $6.83.

IPO market heats up: The public market debut of Reddit (RDDT) Thursday received a warm reception, as shares of the online forum host soared 48% on their first day of trading. The strong showing was interpreted by some observers as a sign of renewed investor ardor for tech IPOs, and IPOs in general, after a couple relatively slow years. The U.S. IPO market was already laying the groundwork for a resurgence in 2023 and appears poised for further strength amid general strength in equities and prospects for lower interest rates, according to Renaissance Capital. The firm forecast 120 to 170 U.S. IPOs in 2024 that raise a combined $20 billion to $45 billion. In 2023, 108 IPOs generated $19.4 billion.

Firming foundation in housing market: The past week produced some encouraging numbers on the U.S. housing industry. The Conference Board’s December Leading Economic Index® (LEI), reported Thursday, posted its first increase in almost two years in part due to improvement in its housing component. But housing still has a way to go to attain full health. Improvement in housing data “has been choppy, but it’s worth noting, given the sector was among the first to experience its own hard landing,” starting in 2021, Liz Ann Sonders, Schwab’s chief investment strategist, and Kevin Gordon, senior investment strategist, said in a report. “Mortgage rate volatility has started to subside, homebuilder sentiment is improving, and actual building activity is picking up.” However, the recovery likely “will remain choppy” due to persistent supply issues and stressed homeowner affordability.

Calendar

March 25: February New Home Sales.

March 26: Durable Goods orders, S&P CoreLogic Case-Shiller Home Price Index.

March 27: EIA Weekly Petroleum Status Report.

March 28: Weekly initial jobless claims, third estimate for fourth quarter GDP, University of Michigan Index of Consumer Sentiment final March estimate.

March 29: U.S. markets closed for Good Friday.

Print

Key Takeaways

  • Numerous economic reports expected next week, including GDP and PCE

  • FedEx shares surging after reporting stronger-than-expected earnings

  • Another pricey summer grilling season ahead for beef lovers

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