WEEKLY | TECHNICAL REBOUND
Your weekly summary with the most important news for your investments.
After the first fortnight of April, the main stock indexes were misaligned on the understanding that the Federal Reserve (FED) would have to face greater inflationary pressures entering the second quarter of the year; the previous week market players took advantage of the stock market discount to reload their investment portfolios with equities, thus registering a technical rebound, with the Dow returning +0.7%, the S&P 500 climbing +2.7% and the Nasdaq +4.2%. For now, the cumulative year-to-date return of the three indices is +1.5%, +6.9% and +6.1%, respectively, in an environment where the 10-year sovereign rate has risen to 4.67% (+79 basis points in 2024). In between, S&P 500 companies' results continue to post better-than-expected sales and earnings with companies such as Alphabet (Google) announcing the first dividend payout in its history accompanied by a US$70 billion share buyback program. At the same time, over the weekend, the automaker Tesla announced that it had reached an agreement with the Chinese company Baidu to expand its autonomous driving service in China, giving a boost to its share price in the premarket after Elon Musk's company announced that it will be producing more economical cars in the coming years.
This week the focus will be on the following three events:
The FED will be dictating monetary policy on Wednesday with a subsequent verbal intervention by its chairman, Jerome Powell, where the agenda will be inflation which today has three sources: a) Wage; b) Energy and this week adds c) Food - a topic we will address in more detail below.
Employment data for the month of April will be released on Friday where it is estimated that the economy would have generated 225 thousand new jobs with the unemployment rate at 3.8% and wage inflation hovering around 4.1%.
Quarterly results from companies including AMD, Amazon, Apple, Coca Cola, Expedia, Mastercard, McDonald's, Paypal and Starbucks among many others will give us a snapshot of domestic and global demand in an environment where the dollar appreciated considerably in recent weeks, having a direct impact on their sales.
Let's start with the inflation data released last week with the headline PCE at 2.7% (up from 2.5%) above market expectations while the core reading, which excludes food and energy prices, was 2.8% unchanged and also above market expectations. It is in this environment that the FED will not be able to lower the interest rate in at least the next two policy meetings as wage inflation remains above 4%, the average gasoline price is rising for several consecutive weeks reaching US$3.79 a gallon and the price of wheat climbed +10% last week leaving it almost at the same level of 12-months ago. Thus, the FED now has three inflationary problems that have formed and some of them are out of its control. In between, the economy has been expanding at over 4% according to Atlanta Fed estimates through its GDPNow model due to robust domestic demand that continues to use its savings to continue consuming without the high interest rates having the desired impact.
It was in this environment that the CEO of JP Morgan Chase, Jamie Dimon, in an exclusive interview with The Wall Street Journal argued that he is not a believer that the economy will have a soft landing as the sharp reduction in liquidity by the issuing institution together with the growing geopolitical risk could generate unexpected turbulence in an environment where the US government continues to approve fiscal packages in order to finance the conflicts that Ukraine has with Russia and Israel with Hamas in a presidential election year. What would still seem optimistic on the inflation front is that market estimates point to a potential rate cut at the late July policy meeting, however, this is unlikely if gasoline and wheat prices do not take a (rather large) breather in the weeks ahead. It is expected that Powell will have to anchor inflation expectations this coming May 1 by changing the discourse he had been adopting until just a couple of weeks ago, since if the price of gasoline continues to rise in the United States, the degrees of freedom with which the FED has been operating may change, and as Dimon mentioned, there could be a remote possibility that the issuing institution may even have to evaluate raising the rate eventually.
On the corporate front, the market reaction between Alphabet and Meta was mixed, with the former announcing dividends and a massive share buyback of US$70 billion, thereby adopting measures similar to those of Apple more than a decade ago (in 2012). This in an environment where the announcements by Alphabet and Microsoft to expand their artificial intelligence programs were well received, while the US$10 billion program announced by Meta had an opposite reaction, causing its share price to over-react. This week it will be the turn of Amazon and Apple and then everyone will be waiting for Nvidia whose share price rebounded +15% during the week.
In conclusion, the technical rebound of the stock market may have support, however, the possible inflationary pressures with three clear sources will mark the speech of the FED president to be all expectant to the announcements that the legendary Warren Buffett will manage the following Saturday when the annual convention of Berkshire Hathaway will take place in Omaha Nebraska, this time with a great absentee, his partner Charlie Munger.
THIS WEEK
Monday (April 29)
Quarterly Reports
Domino's Pizza Inc
Everest Group, Ltd.
Logitech International S.A.
Yum China Holdings, Inc.
Paramount Global
Economic Reports
Manufacturing Index Report, FED Dallas
Tuesday (April 30)
Quarterly Reports
Amazon.com, Inc.
Eli Lilly and Company
Coca-Cola Company (The)
Advanced Micro Devices, Inc.
McDonald's Corporation
Starbucks Corporation
Economic Reports
Employment Cost Quarterly Change Report - Benefits
Employment Cost - Wages Quarterly Change Report
Employment Cost Index Quarterly Change in
Wednesday (May 01)
Quarterly Reports
Mastercard Incorporated
QUALCOMM Incorporated
CVS Health Corporation
Automatic Data Processing, Inc.
Pfizer, Inc.
Economic Reports
ISM Manufacturing Purchasing Managers' Index Report
JOLTs Job Openings Report
Fed Monetary Policy Decision
New Monetary Policy Press Conference, FED
Thursday (May 02)
Quarterly Reports
Apple Inc.
Novo Nordisk A/S
Shell PLC
Linde plc
ConocoPhillips
Amgen Inc.
Economic Reports
Trade Balance Report
Imports Report
Exports Report
Friday (May 03)
Quarterly Reports
Berkshire Hathaway Inc.
Hershey Company (The)
TC Energy Corporation
Magna International, Inc.
XPO, Inc.
Economic Reports
Nonfarm payroll report
Unemployment Rate Report
Services Purchasing Managers' Index (ISM) Report
Now you have more information about your investments. See you next week with more news.
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