Key Takeaways
- Tech-Led Rally Boosts Markets As Earnings Season Gains Strong Momentum
- Upcoming Economic Reports Will Clarify Tariff Impacts And Inflation Risks
- Companies Adjust Supply Chains As Tariffs Complicate Future Earnings Guidance
Stocks staged a modest rally last week as earnings season picked up steam. The technology sector was last week’s stalwart with the Nasdaq Composite gaining 6.7%, followed by the S&P 500, which gained 4.6%. Small caps were up over 4% while the Dow Jones Industrial Average was up 2.5%.
Through last Friday, 36% of the S&P 500 has reported earnings. Based on those companies that have reported and estimates for companies that will report, first quarter earnings are tracking to be higher by 10.1%. The 12-month forward-looking P/E ratio for the S&P is currently 19.8. This week, 180 more companies in the S&P 500 will report, including 11 of the 30 Dow Jones Industrial components.
In addition to a packed earnings calendar, the economic calendar is equally full. On Tuesday, we’ll get the latest JOLTS report on job openings. Wednesday, the preliminary reading on first quarter GDP is due out along with the more recent Personal Consumption Expenditures Index. The Institute for Supply Management Manufacturing report will be released Thursday and then on Friday, we’ll get the April employment report.
The economic reports will be particularly interesting because they will set the foundation for the tariff impacts many are bracing for. Tariffs began going into effect at the beginning of April and we also began seeing large government layoffs begin taking place in April as well. Therefore, I’m interested in whether the PCE report shows any signs of increasing inflation and what the employment figures look like for April as well. This will be especially important ahead of the May 7 Federal Reserve Open Market Committee meeting. The GDP number could also prove interesting. We saw a massive spike in the Durable Goods report last week as companies began front running the impact of tariffs. Therefore, we may need to go through the GDP report with a little more scrutiny than usual to discern the impact of recent trade policies.
With respect to earnings, I expect we are going to continue hearing companies use future economic impact from tariffs as a sort of “get out of jail free card.” We’ve already seen multiple companies withdraw guidance or provide guidance for different economic conditions. Therefore, future guidance will continue to be a bit nuanced. However, what I am interested in hearing about are supply chain plans. Apple, who reports on Thursday, already announced plans to largely move iPhone production to India by 2026. Other companies may be planning for similar changes and I want to know what, if any, changes in the supply chain logistics, will have on future earnings.
For Monday, I expect this to be a bit of the calm before the storm. The first big economic report of the week will take place Tuesday morning with the JOLTS report. Then the more interesting list of companies reporting earnings this week will kick off afterwards. Therefore, we could see some positioning for the remainder of the week begin taking place today. I’m also keeping my eye on Nvidia and Tesla. Shares of Nvidia are lower by 1.5% in premarket on news Huawei has developed a new AI chip. At the opposite end of the spectrum is Tesla, whose shares are higher by nearly 1.5% after last week’s rally following a disappointing earnings call, but news that Elon Musk would be devoting more time to his Tesla obligations. As always, I would stick with your investing plan and long-term objectives.
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