Key Takeaways
- Small Caps Outperformed As Broader Markets Struggled With Volatility
- Earnings Season Heats Up With Big Names Reporting This Week
- Gold Surges While Fed, Trade Tensions Add Market Uncertainty
Markets closed mixed last week with the S&P 500 falling 1.5% and the Nasdaq Composite dropping 2.6%. The Dow Jones Industrial Average was hardest hit, losing 2.7%. Bucking the trend was small cap stocks with the Russell 2000 gaining just over 1%. We’ll see if markets can reverse their fortunes with a big week of earnings and economic data on deck.
Through last Thursday, 12% of the S&P 500 reported earnings with a blended growth rate of 7.2% (a combination of reported earnings and forecasts). The forward-looking 12-month price to earnings ratio for the S&P 500 is currently at 19. That is below the 5-year average of 19.9 but above the 10-year average of 18.3. This week, 122 companies are scheduled to report with some more common household names included. After the close tomorrow, Tesla reports and this is one that will get a lot of attention. The company just announced they will push back the release on a less expensive model in the U.S. Tesla shares have been under pressure all year with stock down over 41% through last week.
Other companies scheduled this week include American Airlines, Boeing, Texas Instruments and Alphabet. I’m particularly interested in hearing what Alphabet has to say. Last summer, a judge ruled Google illegally dominated online search. The company is in court today and over the next three weeks will argue against the U.S. Justice Department, who is advocating for a breakup of the company by selling its Chrome browser.
Both the S&P 500 and Nasdaq have closed lower in three of the last four weeks and seven of the last nine. Concerns over a trade war have wreaked havoc on assets across the board. Gold has been surging to new highs and is currently trading above $3400 in premarket. Since the beginning of the year, gold has only had two down weeks and is up 28%. The surge in gold is likely a result of the fall in equities and rise in stock market volatility. The VIX, which closed out 2024 at 17.35, has been trading at roughly twice its historical mean and is currently quoted at 32.42 in premarket.
In addition to earnings, it’s also a week of some important economic indicators. Various members of the Federal Reserve will speak throughout the week. Last week, President Trump lashed out at Fed Chairman Powell following comments by Powell suggesting the Fed will be slow to cut interest rates until it can quantify the effects of tariffs on inflation. Therefore, I’ll be interested to hear if members of the Fed reinforce Powell’s position or back from potential confrontation with President Trump. We’ll also get the latest Manufacturing Purchasing Managers Index (PMI) and Services PMI on Wednesday, followed by Durable Goods on Thursday. Then on Friday, the latest Michigan Consumer Sentiment and Expectations reports will be released.
In addition to the calendar of scheduled events, I’ll also be on the lookout for new developments in the ongoing trade war. Over the weekend, China issued a threat against companies that conspire to work with the United States to isolate China. What that actually means in practical terms in unknown, however, the more important takeaway here is that the trade war shows no signs of letting up anytime soon.
For today, I’m keeping an eye on Bitcoin, which is above $87 thousand in premarket trading. The 200 daily moving average for Bitcoin is $88,000 and we’ll see if that level serves as resistance. I’m also watching Netflix. The streaming giant reported impressive earnings after the close last Thursday, and the stock is indicated higher by 1.8% in premarket. Finally, as we get deeper into earnings season this week, I’m going to be taking note of what companies say with respect to earnings forecasts. The dual forecasts offered by United Airlines that account for different overall economic conditions, it will be interesting to see if other companies also adopt this approach. As always, I would stick with your investing plan and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.