Earnings and Economic data will dominate the landscape this week. The names on the earnings calendar will start Tuesday with Tesla (NASDAQ:TSLA), followed by Meta (NASDAQ:META) on Wednesday, and Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) on Thursday.
Also, on Thursday, we will get the GDP report for the first quarter, which is expected to show growth of 2.5%. PCE on Friday is expected to rise by 0.3% m/m and 2.6% y/y. Core PCE could jump by 0.3% m/m and 2.7% y/y.
Overall, this week’s data and earnings will have a big say in where markets go over the next several weeks. If the PCE data comes as expected, it likely means Fed rate cuts do not happen until the very end of the year. Meanwhile, hot PCE data probably kills any hope for rate cuts in 2024.
Earnings Estimates in Focus
The odd thing is that earnings estimates for the first quarter have dropped over the past 30 days by around $1.62 per share. Yet, overall earnings estimates for 2024 have fallen just $0.03 per share because analysts have increased estimates for the second, third, and fourth quarters by $0.27, $0.44, and $0.56 per share, respectively.
This has been the trend for some time, where analysts remove growth from the present and shift to the future, which is basically what happened in 2023, leading to “growth” in 2024. But that will also mean that the big companies reporting results this week will need to give guidance to support the rise in earnings estimates we are seeing in future quarters.
What drives these estimates changes is the same game we see every quarter: margins contracting for the current quarter but holding firm or rising for future quarters. That was the game in 2022 and 2023, but in the end, margins collapsed, and that is likely what will happen as we go through 2024. I don’t see how margins will go from being in the 10% range in the past two years to almost 12% in 2024.
Revenue growth in 2024 is expected to be just 1.5% when measuring from where estimates stood for 2023, the only way you can get earnings growth in 2024, roughly 10%, is to have lots of buybacks or margin expansion. So if margin expansion falls through, we will need lots of share buybacks, or companies will need to boost sales through, I guess, higher prices.
Expectations for GDP and PCE Data Relatively Modest
Returning to this week’s GDP and PCE, expectations are relatively modest, with the risk of some upside to these numbers based on the GDPNow forecast and some anecdotal inflation data. The point is that rates look positioned to go higher from here, especially after the 2-year consolidation at around 5% over the past week following the hot CPI data.
At this point, the 2-year looks poised to travel to around 5.25%, potentially going higher than that purely based on the technicals. I would guess that the fundamentals would come into place to support the technical view.
2-Year Rate Set to Rise
There are two bullish patterns in the 2-year. The first and most apparent is the giant cup and handle pattern, which suggests a 2-year climb to 5.38%. Secondly, there is a small bull flag, which suggests a move to 5.23%. However, a 1.618% extension of the bull flag gets the bull flag, and the cup and handle pattern to both meet at 5.38%, which is a freaky type of thing, given the low probability that the pattern would present similar potential destinations.
Rate Hikes Unlikely
It would take the market to start pricing in rate hikes again from the Fed to get there on the 2-year. While that seems like a probable non-event, given the data we have seen, it wouldn’t surprise anyone to hear me say that I think the policy is not as restrictive as the Fed thinks since I have repeatedly said it for months.
“Powell Indicator”
The “Powell” Indicator, which measures the spread between the 3-month Treasury Bill rate and the 3-month Treasury Bill 18-month forward contract rate, now stands at just -59 bps. That is not because the 3-month Treasury Bill rate is falling but because the 18-month forward contract rate is rising. If this spread continues to narrow, with the forward rate rising to the spot rate, it would probably be the best signal of where the market thinks the Fed’s overnight rate is going.
Dollar on the Path Back to 113 Level?
This would be bullish for the Dollar Index, and it would need to get beyond the 107 resistance to become very bullish. At that point, the dollar would have a pretty much uninterrupted path back to the 113 level.
S&P 500 Oversold?
The S&P 500 is nearing oversold levels, but not quite oversold yet, and would need to see the RSI fall below 30 and the price drop below the lower Bollinger band. For now, the RSI is at 31, even with the price below the lower Bollinger band it is getting close to those oversold conditions. It wouldn’t be surprising to see the S&P 500 bounce, but I think any bounce is likely to be short-lived. Ultimately, I still believe there is a path back to 4,100. 
Nvidia Breaks Lower
Nvidia (NASDAQ:NVDA) finally broke lower on Friday, and we are now in the process of filling the gap from February 21. At $670, a gap fill still seems like the most likely outcome, with resistance at $800 now firmly in place and support at $750. However, below $750, things to the downside are likely to continue based on the gamma profile.
Meta (META) Indicates a Bearish Pattern
Meta fell out of its ascending megaphone pattern on Friday, a bearish indication.
For Meta, it’s all about the $470 level, which has a significant amount of put gamma and a technical gap. At that level, one would expect to see a bounce. A break of $470 opens the possibility of a stepper drop to $390 and a gap fill from Meta’s fourth-quarter results.
