The S&P 500 closed modestly lower last week as investors prepare to hear from the Federal Reserves next week. The Dow Jones Industrial Average fell 0.2% while the Nasdaq Composite closed 0.4% lower as it continues to trade above 12000.
“We expect the Fed to pause rate hikes next month. This won't be a cure-all, but it will be an important step towards a more sustainable recovery,” Edward Jones analysts said.
Looking forward to this week, investors will get the closely-watched PCE inflation report as well as the final Consumer Confidence Surveys for April. The Q1 U.S. GDP data is out Thursday.
Investors are also likely to monitor the debt ceiling drama and if the latest package can go through the House this week.
Huge week for Q1 earnings
This week is also a huge week for the Q1 earnings season with more than 1/3 of all S&P 500 companies due to report, including Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Meta Platforms Inc (NASDAQ:META), Exxon (NYSE:XOM), Boeing (NYSE:BA), Visa (NYSE:V), and Mastercard (NYSE:MA), etc.
So far, about 18% of the S&P 500 companies have reported results with 76% and 63% posting a positive EPS and revenue surprise, respectively, according to FactSet. For Q2, 9 S&P 500 companies have issued negative EPS guidance and 5 S&P 500 companies have issued positive EPS guidance.
“For Q1 2023, the blended earnings decline for the S&P 500 is -6.2%. If -6.2% is the actual decline for the quarter, it will mark the largest earnings decline reported by the index since Q2 2020 (-31.6%),” FactSet analysts noted.
What analysts are saying
Edward Jones: “The rebound in stocks and bonds over the past six months has been supported by the turn in inflation, economic resilience, and the peak in yields. Emerging headwinds suggest that markets might need some further fuel to continue to fly higher. We would view a renewed phase of volatility as an opportunity to position for a more durable rebound ahead.”
BTIG: “We think resolution to the small range comes this week with ~20% of SPX components reporting earnings. While the market appears to be resilient to any sort of downside, we could say the same about a lack of a breakout. We are nearly at the tail end of the bullish seasonal period, we have a VIX at the lowest level in 15-months, systematic (CTA’s) have reversed a large short position and are now largely believed to be quite long, and NAAIM net exposure is higher than at the August peak. Yet despite all of that, the market has been unable to breakout above 4200, and now has negative divergences as momentum is rolling over.”
Morgan Stanley: “So far this earnings season, stocks have traded more in line with fundamentals. This is different than the past few quarters and the beginning of what we think is a reset on expectations for a 2H EPS recovery. The Fed seems determined to fight inflation even if a more significant slowdown arrives.”
Vital Knowledge: “The SPX isn’t about to scream higher, but we continue to push back on the pervasive stubbornly persistent bearishness. Investors need to remember that companies in the S&P 500 are global, and stock prices are a function of EPS and multiples, not US GDP.”