Earnings season gets busy today, with more green than red on the morning's scorecard and Tesla looming later. A Treasury auction this afternoon could be worth watching for signs of demand, with yields elevated early Tuesday. The dollar and crude have eased a bit, which could help stocks.
Earnings news looks mixed this morning but trends toward green, with Tesla ahead
Crude steps back as Middle East tensions soften, while dollar drops below 106
(Tuesday market open) Major indexes remained upright early today after Monday’s firm gains broke a six-session losing streak, but the footing isn’t solid. A mixed batch of earnings results and elevated Treasury yields could pose headwinds, while Tesla (TSLA) looms after the close.
Companies rising this morning on solid earnings include General Motors (GM), Kimberly-Clark (KMB), Lockheed Martin (LMT), and United Parcel Service (UPS). Shares of JetBlue Airways (JBLU) and Philip Morris (PM) lost ground as investors pored over their reports, but in general, the morning’s scorecard looked mostly green. Over in fixed income, the benchmark 10-year Treasury note yield remained near five-month highs well above 4.6%. Crude oil and the dollar backed off as tensions between Israel and Iran eased.
Wall Street enjoyed sunny technical weather yesterday thanks to the S&P 500® index (SPX) closing above a key support level near 4,990 that marked a 23.6% retracement of the October-through-March rally. This could bring spillover buying today, especially if chip stocks stay hot. Nvidia (NVDA) bounced more than 4% Monday to claw back some of last week’s 14% retreat, and Nvidia’s shares edged higher in premarket trading this morning.
Still, it might be tough to gain much traction today. Investors likely want a better picture of earnings from four of the “Magnificent Seven” about to report. Tesla gets things started this afternoon, followed by Meta Platforms (META) tomorrow and Microsoft (MSFT) and Alphabet (GOOGL) on Thursday.
Friday’s March Personal Consumption Expenditures (PCE) prices report—the Federal Reserve’s favored inflation metric—is another touchpoint straight ahead. The week is also peppered with Treasury auctions, where demand could move yields. A 2-year note auction is scheduled this afternoon.
Results of this week’s data, auctions, and earnings could provide a clearer roadmap for Wall Street, and so could next week’s Fed meeting, though no rate move is expected. William Shakespeare, whose birth is celebrated today, referred to the “uncertain glory of an April day,” and those words could apply to Tuesday’s market as investors await tidings.
“It’s a busy week of economic data, but Friday’s PCE report should make the most headlines,” said Collin Martin, director, fixed income strategy at Schwab. “We still expect the next move by the Fed to be a cut, rather than a hike, but that cut shouldn’t come until later this year.”
Recent dramatic losses reflect weakness in stocks like Nvidia and Tesla with their dominating market capitalizations. Most S&P 500 stocks actually rose last week. Also, last week’s relatively strong performance by the Dow Jones Industrial Average® ($DJI) mainly reflected strength in its largest component by price, UnitedHealth Group (UNH). This shows the importance of diving deeper to get a sense of the broader market’s performance. The SPX hasn’t gained two sessions in a row yet this month.
Futures based on the SPX were up 0.1% shortly before the close of overnight trading and futures based on the Nasdaq-100® (NDX) rose 0.1%. Futures based on the $DJI edged up 0.07%.
The VIX languished for months before waking up last week and piercing 20 for the first time since November. It eased early this week. There’s plenty of geopolitical and rate-related uncertainty, but it’s also not uncommon for the “fear index” to rise as investors position themselves ahead of earnings.
Tech roll-out: Tech earnings kick off today as Tesla plugs in, though the stock isn’t formally a “tech” name because it lives in the S&P 500 consumer discretionary sector. Analysts anticipate earnings per share (EPS) of $0.48, down from $0.85 reported a year earlier, on estimated revenue of $20.94 billion, down 11.4% from year-ago results, according to Yahoo Finance.
Questions for Tesla this time around could include the impact of layoffs for Tesla’s margins and sales, what chance there might be for a sales recovery, progress on a lower-priced car, recent price cuts, the Cybertruck recall, and competition in China. With so much bad news baked in, any surprise positive tidings could potentially support shares.
The tech ball really gets rolling with Meta Platforms, Microsoft, and Alphabet this week. Analysts have lofty expectations for EPS and revenue growth expectations, with AI likely driving gains to some extent but cost-cutting another factor. Multiples for most of the mega caps galloped higher in Q1.
The usual metrics like cloud growth and internet ad sales loom large, but another question is how quickly customers adopted AI offerings from both Microsoft and Alphabet.
Semiconductors are on the calendar, too, with Intel (INTC) and Texas Instruments (TXN) reporting, too. Texas Instruments chips in this afternoon, followed by Intel on Thursday. Advanced Micro Devices (AMD), the main AI competitor for Nvidia, is expected to report next week after chip stocks took it on the chin in Friday’s steep sell-off.
Chip stocks still trade well below last month’s highs, blown back by investor disappointment over cautious guidance from chip fabricator Taiwan Semiconductor (TSM) last week.
With so many earnings reports ahead, now’s a good time to check this Schwab video, “Don’t Miss These 3 Things in Earnings Calls.”
General Motors climbed 4.5% in premarket trading after the auto maker beat Wall Street’s earnings estimates and raised its 2024 guidance. Both earnings per share (EPS) and revenue easily exceeded analysts’ expectations despite rising costs associated with a new labor contract. In its press release, GM emphasized the company’s “all-electric future” and its Ultium battery platform. “Improving [battery] module availability is enabling higher vehicle production, which we believe will help us win even more new customers in the growing U.S. EV market,” said CEO Mary Barra in her quarterly letter to shareholders. “We have standout EVs today and more coming.”
UPS shares rose more than 1% ahead of the open despite quarterly revenue slightly missing Wall Street’s expectations. EPS beat the average analyst estimate, however, as the company worked on cutting costs even as it wrestles with higher labor expenses following a new contract signed with the Teamsters union last year. Average daily volume, which had been another challenge, showed signs of improvement during the quarter, the company said Tuesday.
JetBlue Airways stock descended more than 9% following its earnings release despite a narrower-than-expected Q1 loss. The company’s disappointing outlook for Q2 revenue delivered the dagger this morning, with Q2 revenue expected to fall 6.5% to 10.5% year over year, compared with the average 3.7% drop expected by analysts, according to FactSet data. The company’s full-year guidance is also below Wall Street’s, and it’s struggling with what it calls “significant elevated capacity in our Latin (America) region, which represents a large portion of JetBlue’s network,” the company said in a release.
Inflation ahead: Friday’s March PCE data come after hotter-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) reports already released for the month.
Early this week, analysts’ consensus was 0.3% for both PCE and core PCE on a month-over-month basis, according to Trading Economics, the same as the 0.3% increases for each in February. Core strips out volatile energy and food prices.
On an annual basis, analysts expect PCE to be up 2.6% and core PCE to also rise 2.6%, compared with 2.8% and 2.5%, respectively, a month earlier.
Before PCE, investors await the government’s first estimate for Q1 gross domestic product (GDP) early Thursday. Analysts expect an annually adjusted growth rate of 2.5%, down from 3.4% for the final Q4 reading, according to Trading Economics. With inflation a key concern, keep an eye on the report’s GDP Deflator, which rose 1.7% in Q4. Analysts expect that figure—which measures the cost of all final domestically-produced goods and services across the economy—to be up a steep 3% in Q1.
Other U.S. reports to watch in coming days include durable goods and New Home Sales. The durable goods data could be a useful barometer of consumer trends to see if people are still buying large, expensive items when inflation and rates remain stubborn. On a similar note, stay tuned after the close today for earnings from Visa (V), another touchpoint for consumer trends. New Home Sales ring in today shortly after the open and analysts expect a slight rise to a seasonally adjusted annual rate of 670,000, according to Briefing.com. Median selling prices have been on the wane, so watch whether that trend continued in March.
U.S. equities roared back from last week’s slump to post broad gains Monday, as signs of easing tensions in the Middle East and a drop in crude oil prices sparked renewed buying vigor. The SPX and the Nasdaq Composite® ($COMP) both gained about 1% and broke six-session losing streaks.
Semiconductors led the technology sector higher after leading the way down last week. WTI Crude Oil futures (/CL) dropped about 0.1% after Iran said it won’t escalate its conflict with Israel.
Early today, futures traders place 99.7% chances of rates remaining unchanged at the FOMC’s April 30–May 1 meeting. Odds of a 25-basis point cut at the June meeting are around 14%, rising to roughly 38% for the late-July meeting, based on the CME FedWatch Tool. Odds of a cut rise above 50% for the September meeting, and the market prices in one to two cuts for the full year.
Talking technicals: If the market truly does fall out of bed, an interesting spot on the SPX charts could be around 4,690. That’s a 50% pullback of the rally from the October low to the March high, and also lines up closely with the index’s 200-day moving average. Much closer on the charts is the 100-day moving average just below 4,940. Any rally could be met by strong resistance at the 50-day moving average, now at 5,118.
Sneak preview: Learn what Jeffrey Kleintop, Schwab’s chief global investment strategist, is watching this week in his Weekly Market Update video.
CHART OF THE DAY: “OLD” ECONOMY OUTPACES. This nine-month chart of the S&P 500 Technology Select Sector Index (IXT—candlesticks) versus the S&P 500 Industrial Select Sector Index (IXI—purple line) shows industrials losing ground recently but not as steeply as its brethren in the tech sector. Industrial strength could reflect U.S. fiscal stimulus and robust consumer demand. Investor rotation out of tech and into “old world” economy stocks might also play a part. 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
Internal affairs: The last two weeks have seen massive outflows of hedge fund and institutional money from stocks, with some rotating into bonds and some into gold. The question is whether this continues and where the money flows. In the past three weeks, equity exposure among active mutual funds dropped by almost half to 63%, according to National Association of Active Investment Managers, down from 104% in late March, the highest level since November 2021. Hedge funds were net sellers of equities for a third consecutive week, according to Goldman Sachs. Citigroup’s basket that tracks top hedge fund holdings is down for a fifth straight week, falling to the lowest level since early February, suggesting funds are paring long positions.
Monthly nut: Tesla’s price cuts reported yesterday by Reuters could reflect a wider issue for more durable goods makers beyond Tesla and other automakers. High borrowing costs and sharp inflation in the price of everyday items over the last three years have makers of more expensive products taking a new approach to customers. For instance, if you’ve been in a car dealership lately, you might have noticed you were asked not what price you want to pay for your new wheels, but what monthly payment you want to make. It’s possible Tesla saw a customer that’s more constrained by food inflation and the rising cost of shelter and energy, and felt it had to pivot.
Foul is fair? After the plunge in semiconductor shares last week that included Nvidia dropping 10% on Friday alone to below an $850 a share technical support area, sector earnings this week come with investors worried about industry performance. That’s especially true considering last week’s results from Taiwan Semiconductor (TSM) didn’t blow anyone out of the water and caused selling. For Texas Instruments today and Intel on Thursday, all this hand wringing could have the opposite impact on shares. “The bar is incredibly low,” said Kevin Hincks, host of Fast Market on the Schwab Network. “Anything positive from their earnings could cause a recovery. If everything is expected to be bad and something comes out good, that’s a big advantage.” This isn’t only true for semiconductor earnings, naturally. Consider it, too, as beaten-down firms like Tesla and Boeing (BA) report this week.
April 24: March durable goods orders, and expected earnings from Meta Platforms (META), AT&T (T), Ford (F), Boeing (BA), IBM (IBM), Humana (HUM), and Waste Management (WM).
April 25: March Pending Home Sales, first Q1 GDP estimate, and expected earnings from Bristol-Myers Squibb (BMY), Merck (MRK), Intel (INTC), Union Pacific (UNP), Dow (DOW), Alphabet (GOOGL), Microsoft (MSFT), T-Mobile (TMUS), and Valero Energy (VLO).
April 26: March PCE Prices and March core PCE Prices, March Personal Income and Personal Spending, final University of Michigan April Consumer Sentiment, and expected earnings from AbbVie (ABBV), Chevron (CVX), Exxon Mobil (XOM), and Aon (AON).
April 29: Q1 Employment Cost Index, April Consumer Confidence, and expected earnings from Paramount Global (PARA).
April 30: April Consumer Confidence and expected earnings from 3M (MMM), Coca-Cola (KO), Eli Lilly (LLY), McDonald’s (MCD), Amazon (AMZN), Starbucks (SBUX), and Super Micro Computer (SMCI).
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