On a Roll: Stocks Edge Higher Following Another Batch of Strong Earnings Ahead of Meta Platforms

(Wednesday market open) With April’s first two-day rally in the books, Wall Street remained firm this morning as investors awaited results from Meta Platforms (META) and pondered Tesla’s (TSLA) disappointing quarter

Big-tech earnings dominate today and the rest of the week, likely setting the general tone. Tesla shares bounced in premarket trading Wednesday despite the company missing analysts’ expectations. The rally probably reflects oversold conditions and hopes for a more affordable car from the struggling company.

Hockey great Wayne Gretzky said he skated toward where the puck will be, not where it is. Investors might want to remember that as they watch tech earnings filter in this week and next. It’s not so much what they did in Q1. It’s what they say about the near future, and Tesla’s results and the market’s reaction could be emblematic.

Meta Platforms skates up for the opening face-off later today, followed by Microsoft (MSFT) and Alphabet (GOOGL) tomorrow. Key things to watch, besides their guidance and any insight on AI trends, include Meta’s continued progress with cost cutting, cloud growth at Microsoft and Alphabet, and internet advertising growth for Meta and Alphabet.

“Big Blue,” also known as IBM (IBM), is another cloud competitor on tap after the close today, and chip giant Intel (INTC) reports tomorrow. Intel’s take on sector demand could get close attention following jitters this earnings season after initial reports from semiconductor firms. Tech stocks generally rallied into their earnings this week, indicating potential investor optimism despite the sector’s recent plunge.

“Earnings will help dictate near-term price action, primarily reports from META, MSFT, and GOOGL later this week,” said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. “Sentiment around the AI secular growth story has taken a bit of a blow, following weak guidance from ASML (ASML) and no raised guidance from Super Micro Computer (SMCI). This could shift however if META, MSFT, and GOOGL demonstrate growth and healthy adoption of their respective AI offerings.”

March Personal Consumption Expenditures (PCE) prices report, the Federal Reserve’s favored inflation metric, is due Friday. We’re in a “bad news is good” environment with stocks extremely sensitive to Treasury yields. Any sign of softness in the economy could summon a cheerful greeting from Wall Street, starting with today’s durable goods data and tomorrow’s first-quarter gross domestic product (GDP) data. Yields rose this morning following stronger data out of Australia and Germany, but major indexes were mostly higher in premarket trading as investors focused on solid earnings from Texas Instruments (TXN), AT&T (T), and Visa (V).

Futures based on the SPX were up 0.3% shortly before the close of overnight trading and futures based on the NDX climbed 0.8%. Futures based on the $DJI were flat.

Morning rush

• The 10-year U.S. Treasury yield (TNX) is up nearly four basis points at 4.63%.
• The U.S. Dollar Index ($DXY) inched up to 105.89.
• The Cboe Volatility Index® (VIX) is steady at 15.76.
• WTI Crude Oil (/CL) slipped 0.6% to $82.86 per barrel.
• Bitcoin (BTC) is flat at $66,470.

Just in

Durable orders jumped 2.6% in March, well above the Briefing.com consensus of 1.5%. However, stripping out transportation, orders rose just 0.2%, a sliver below the average 0.3% estimate. The 10-year note yield dropped about one basis point following the report.

Stocks in spotlight

Tesla earnings weren’t a pretty affair in terms of hitting Wall Street’s hopes. The company missed average estimates for both earnings per share (EPS) and revenue. Still shares jumped 11% in premarket trading as investors grabbed onto CEO Elon Musk’s words about beginning production of an affordable model as soon as later this year. Tesla didn’t just miss on revenue and profit numbers. Its gross margin fell 199 basis points year over year, reflecting competition that’s forced down prices across the industry.

Boeing (BA), like Tesla, has had a turbulent year. Safety issues including a blown-out door on an Alaska Airlines (ALK) flight a few months ago raised new concerns and hindered production while airline customers expressed frustration. Still, shares bounced 3% in early action Wednesday following an earnings beat, but losses were heavy as the company slowed 737 production to address issues and the company has now suffered seven quarterly losses in a row. Stuff to listen for on Boeing’s call today include any color on the search for a new CEO to replace Dave Calhoun, who recently announced he’s stepping down at the end of the year, and any potential guidance. There was no guidance in the press release.

For stocks like Tesla and Boeing that have been under pressure, any sense of light at the end of the tunnel could be something bullish investors grab onto.

Meta up next: Meta isn’t officially a “tech” stock, residing instead in the communication services sector. That sector is actually up for the last month, far outpacing the chip-led tech sector. Meta treaded water the last few weeks after a strong rally to start the year and remains up more than 40% year to date.

The fast start out of the gate came as Meta reported profit tripling year over year in Q4 as revenue jumped 25% and expenses fell 8%. Meta also declared a dividend for the first time ever. Investors would probably like to see similar progress in Q1 and could be rooting for the company to trim losses in its virtual reality business. That unit lost more than $4.6 billion in Q4.

Last time out, Meta predicted Q1 sales to range between $34.5 billion and $37 billion. It also forecast expenses for 2024 in a range of $94 billion to $99 billion. Though meeting these metrics might support shares, investors might be looking for something even better, judging from the stock’s performance. Companies that haven’t achieved expectations so far this quarter, whether on guidance or quarterly numbers, are getting punished on Wall Street.

Stocks on the move:

• Visa (V) gained 2.5% in overnight trading after the credit card giant posted better-than-expected EPS and revenue. This company is a good barometer of consumer health, and Visa executives saw stability in spending trends. This follows a robust report from competitor American Express (AXP) last week. Visa’s guidance is for low-double digit revenue growth this year.
• AT&T (T) shares rose 1% despite missing analysts’ estimates for quarterly revenue. It did beat estimates for earnings per share. The company highlighted profitable growth it said was showcased by increased Mobility service and broadband revenues. It also pointed to margin expansion and improved free cash flow.
• Humana (HUM) rose 2.6% in premarket trading as the company easily beat Wall Street’s Q1 profit estimates and affirmed its full-year adjusted EPS guidance. The company stressed strength in the Medicare Advantage business.
• Texas Instruments (TXN) jumped 7% ahead of the open after beating analysts’ quarterly estimates and reporting in-line guidance for Q2. The semiconductor company noted that revenue declined across all end markets as customers continued to reduce their inventory levels, while gross margin declined due in part to higher manufacturing costs. Still, the stock is up, perhaps as investors focus on what analysts called a solid revenue forecast from the chip maker.

What to watch

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.

There’s some hope that PCE could be milder, in part due to fluctuations in PPI and also because it’s less shelter focused. CPI, which grabbed so much of the market’s (and the Fed’s) attention lately, has been inflated mainly by rising shelter and insurance costs.

Consensus is 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 get a glance Thursday at the government’s first estimate for Q1 gross domestic product (GDP). 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.

Market estimates have been climbing for weeks based on robust economic data, playing into expectations that the Fed could wait longer to cut rates. The Atlanta Fed’s GDPNow model now pegs GDP to grow at a seasonally adjusted annual rate of 2.9%, not much below the final Q4 reading of 3.4%. That monitor gets updated today.

Tomorrow also brings Initial Weekly Jobless Claims, but watching that report lately has been like watching paint dry it’s changed so little. Last week’s 212,000 is expected to climb to 215,000 this time around, according to Briefing.com. Continuing claims, which climbed above 1.8 million last time out, remain relatively low, as do initial ones.

Auction block: Firm demand for yesterday’s $69 billion 2-year Treasury auction supported the fixed income market, and more auctions are scheduled in days to come. Though this might seem like an obscure thing to watch, it’s a potential market-moving factor with yields elevated and U.S. government debt at record levels. A record $70 billion 5-year note auction this afternoon and a 7-year auction Thursday could help determine yields. Treasury yields and stocks are locked at the hip lately, as yesterday’s yield drop and stock market rally showed.

Tuesday in review:

Stocks ended with broad gains Tuesday after a round of strong earnings encouraged investors ahead of highly anticipated quarterly reports from major technology companies. The $DJI posted a two-week high, and the SPX hit its highest close in over a week.

“Stocks continue to bounce back from oversold conditions, helped by a modest decline in Treasury yields,” Schwab’s Peterson said. Shares of General Motors (GM) jumped 4.4%, and United Parcel Service (UPS) added 2.4%, both propelled by firmer-than-expected quarterly results. Verizon Communications (VZ) advanced almost 3% after reporting quarterly numbers.

Eye on the Fed

Early today, futures traders place 98% chances of rates remaining unchanged at the Federal Open Market Committee’s (FOMC) April 30–May 1 meeting. Odds of a 25-basis point cut at the June meeting are around 15%, rising to roughly 40% for the late-July meeting, based on the CME FedWatch Tool.

Greenback outlook: Where’s the dollar going? Get the latest review on currencies and how a strong dollar might affect the global economy from Jeffrey Kleintop, chief global investment strategist at Schwab.

Thinking cap

Ideas to mull as you trade or invest

Fear itself: The VIX, often thought of as Wall Street’s “fear index,” picked up last week as geopolitics and crude oil prices raised uncertainty. Still, looking ahead, the market doesn’t indicate high potential of VIX remaining elevated much above current levels. Futures contracts out toward the end of the year mainly traded in the 17–18 range early this week, below the long-term average of around 20 and also close to where VIX trades at the moment. The exception is October, where futures again trade above 20. This could reflect election-related concerns.

One word for you: A famous movie quote says the future is in plastics. That was nearly 60 years ago, but for oil companies worried that gasoline demand could peak in coming years, plastics made from chemicals derived from fossil fuels could get more future focus. Unfortunately for the industry, Barron’s reports, there’s a glut of plastics and a huge amount of new production capacity coming online by the end of the decade. Prices have fallen more than 50% in the United States since 2021. Despite this, fossil fuel companies see chemicals as an expansion opportunity, with plastics increasingly used in everything from cars to rugs. Most chemicals end up as plastics, and they’re derived from numerous sources, including liquified petroleum gas, naphtha, and natural gas.

Plastic wrap: About 10% of the 102 million barrels of oil produced each day end up as chemicals, and “big plastics producers like Exxon Mobil (XOM), LyondellBasell (LYB), Shell (SHEL), and Dow (DOW) have collectively plowed tens of billions of dollars into new plants,” Barron’s said. Saudi Arabian Oil and Chevron (CVX) are also investing in chemical production. It’s an interesting trend to watch in the energy sector as peak gasoline possibly looms, but raises fresh environmental concerns, as well. Speaking of XOM and CVX, both report at the end of the week and could be watched closely for their insight into current production and demand trends with crude oil still near last fall’s highs despite political temperatures cooling somewhat in the Middle East this week.

Calendar

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).

May 1: FOMC meeting announcement and press conference, March construction spending, April ISM Manufacturing Index, and expected earnings from CVS Health (CVS), DuPont (DD), Estee Lauder (EL), Kraft Heinz (KHC), Mastercard (MA), and Carvana (CVNA).