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This signal could be good news for the stock market
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Earnings Season is slowing down and a strange confluence of events is occurring – the the economy is slowing downbut corporate profits are accelerating.
Some analysts think this means good news for stocks in the second half of the year.
What is happening: The past week has proven that investors are nervous and looking for clues about what comes next – even relatively insignificant economic indicators are attracting outsized attention from Wall Street.
The Dow fell more than 600 points, marking its worst day of the year so far on Thursday, after the May Purchasing Managers Index, which is expected to decline slightly, rose 3.5 percentage points month over month. This, in turn, suggested to investors that the Federal Reserve will not cut interest rates anytime soon, triggering the sell-off.
PMIs provide advance information about the economic health of the manufacturing and services sectors by surveying purchasing managers about their business conditions. It’s a useful tool, but it doesn’t typically get much attention on Wall Street.
Other data, such as reports from the Institute for Supply Management, are generally considered more comprehensive and influential.
Last week’s violent reaction to the PMI highlights the market’s current sensitivity to economic data, as investors worry about the Fed’s interest rate decisions. Even secondary economic indicators are shaping market sentiment and influence investment decisions as Wall Street fears that a more robust economic environment could mean higher interest rates for longer.
Yes but: There’s an interesting dynamic at play as investors worry about corporate profits and a stronger economy at the same time, Bank of America analysts wrote in a note Tuesday.
Higher interest rates can increase borrowing costs and reduce corporate profits, leading to a sell-off in stocks as investors adjust their expectations of future growth and profitability – which is where the concern comes from. But that didn’t really happen. At least not yet.
About 97% of the companies in the S&P 500 have reported their first quarter earnings at this time. And so far, they’ve beaten consensus earnings per share estimates by about 3%, according to Bank of America. Earnings are up 7% since last year, and all 11 S&P 500 sectors, with the exception of healthcare, beat estimates.
There were some concerns about companies reducing their outlook for the rest of the year, but overall, estimates for the rest of 2024 increased slightly this quarter.
“The equity cycle looks different from the macro cycle today. While [gross domestic product] and the job market appears to be slowing, incomes are accelerating,” Bank of America analysts wrote.
Historically, a scenario of a slowing economy and accelerating profits has been the best environment for action, they wrote. This could point to a strong second half of the year for markets.
Yes, but, but: This also means that there could be a lot of sensitivity and extreme market swings when economic data is stronger than expected, as we saw last week.
Still, the Fed is only part of the equation. Assets and industrials account for about half of S&P 500 profits, BofA analysts wrote. But they represent less than 20% of the US economy.
This means an improvement in the production cycle, but the slowdown in services can lead to a divergence between market performance and economic performance.
Next: Meanwhile, all eyes are on Friday’s release of the U.S. Personal Consumption Expenditure Index for April — which is the Fed’s preferred inflation gauge. There are also some notable earnings reports coming this week – including Salesforce, Dell and Marvell. In consumer sectors, the list includes Dollar General and Costco.
House prices in the US reached an all-time high in March, reflecting the persistent affordability crisis in the housing market.
The S&P CoreLogic Case-Shiller U.S. National Home Price Index, a measure of home prices across the country, jumped 6.5% in March from a year earlier to a record high. It is the sixth time the index has reached a new record in the past year.
The report showed that there is strong demand for housing in urban population centers such as San Diego, New York, Cleveland and Los Angeles. The 20-city index rose in March at a slightly faster pace than in February.
“This month’s report presents another all-time high,” said Brian Luke, head of commodities, real and digital assets at S&P Dow Jones Indices. “We have witnessed records broken repeatedly in the stock and real estate markets over the past year.”
In addition to relentlessly high home prices, the housing market is also struggling with a chronic shortage of homes on the market and high mortgage rates. Altogether, it has resulted in a difficult housing market, especially for first-time buyers.
Imagine asking Apple Siri to show you an old photo taken on a child’s second birthday or summarizing long emails and drafts. So consider having Siri learn your schedule, preferences, and even your personality so it can better communicate with you throughout the day.
Generative AI, artificial intelligence that can provide thoughtful and complete responses to questions and requests, could potentially breathe new life into Apple’s iPhone lineup at a time when competitors threaten to leave the company behind in the race to shape what could be a world change. technology, reports my colleague Samantha Murphy Kelly.
The company is widely expected to partner with ChatGPT maker OpenAI ahead of its annual Worldwide Developers Conference in June, where it will likely showcase its first batch of AI tools coming to iOS software.
While artificial intelligence has powered some of the iPhone’s experiences for years, like Live Text and improved generative and self-healing AI could unlock new levels of interaction and personalization. All this at a time when the company is under pressure to catch up to rivals like Google and Samsung, who already use the technology on their smartphones.
“We see generative AI as an important opportunity in our products and believe we have advantages that differentiate us in this regard,” Apple CEO Tim Cook said on the company’s most recent earnings call in early May, noting that there would be news announced in the “following weeks.”