Calm Before The Storm? Markets Await Tech Earnings, PCE, And FOMC

Market activity has been muted lately; investors are seemingly cautious ahead of the next FOMC meeting. Earnings season is also underway, with mixed market responses to earnings from names like Tesla TSLA, Morgan Stanley MS, Johnson & Johnson JNJ, and Procter and Gamble PG. While there are too many companies still to report for a fuller earnings picture, we should know a lot more in the coming days, with more than 40% of the S&P 500 reporting this week. 

US markets also await key inflation data on Friday, which is unlikely to influence the next Fed rate decision but may provide some clues as to the Fed’s stance beyond the May meeting. There will be a noticeable absence of Fed voices leading up to the next FOMC meeting, leaving markets on their own to interpret the data.  

Read on below to find out more about each of these issues and be sure to visit HYCM Lab for ongoing coverage of top market stories.  

Earnings Better than Feared 

Q1 earnings have yet to provide any conclusive answers regarding the path ahead for the US economy. The earliest batch have surprised to the upside, with more than 75% of S&P 500 companies that reported up to April 21st having announced a positive earnings-per-share surprise. In the case of revenue beats, the figure drops to 63%.  

Despite recessionary fears mounting, so far equity holders appear to have been granted a reprieve, especially considering how dire earnings forecasts were at the beginning of the year. “Better than feared” appears to be the theme at the moment rather than “better than expected.” With all the major big tech names reporting this week, we should have a much clearer picture by the end of the month, moving into the FOMC meetings in the first days of May. 

As markets receive the announced figures and compare them to analyst expectations, forward guidance is proving to be much more important with softening outlooks among company CEOs contributing to the perception that a recession is imminent, and company stock prices being punished accordingly.  

The share prices of Phillip Morris and Johnson & Johnson both recently took a hit due to their lowered sales and earnings expectations, while Tesla stock sold off on its expectation of further price cuts in the year ahead. Investors appear to be especially vigilant for hints that outlooks are being moderated, as well as talk of inflation figuring as a persistent concern.  

Market Action Muted 

As far as the S&P 500 is concerned, the bulls have failed to push the price above its February highs, and price action has narrowed to a 55-point range in recent trading sessions. If it breaks lower, it has the 20-day moving average as support at 4109.50, and failing that, the lowest daily close since the March rally at 4070. The range to keep an eye on is 4070 to 4180.  

The Nasdaq performed better in March, the bulls managed to extend the January rally, pushing valuations beyond the February highs at 12,700. Currently, the index is at its highest level since August of 2022. Recent bearish action on Telsa and Netflix have coincided with it dropping below its own 20-day moving average after margin compression and subscriber count disappointments. As things currently stand, the next line of support is to be found at 12,848, which is the low point of the recent daily range established following the March rally. Below that we have the February highs at 12,700 as support.  

Upcoming Indicators 

Friday’s core PCE reading is the most important, and likely to be the most impactful of all the US economic indicators to be announced this week. Last month’s core PCE report showed a slowing in inflation, with core PCE down to 0.3% in February from 0.5% in January. Wall Street expects a 0.3% reading for March. Any surprise to this could lead to market volatility, if not to a change in the Fed’s plans.   

As far as the next FOMC meeting goes, the market is expecting a 25-basis point hike, with CME’s Fedwatch tool currently forecasting a 90% likelihood of a 0.25% rate increase at the next meeting in May.
 

Follow Earnings Season with HYCM 

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