Markets
Stocks Markets Seek Direction at Start of Busy Earnings Week
Apr
Stocks Markets have turned quiet after last month’s abrupt collapse of Silicon Valley Bank spurred worries about the health of the financial system. The S&P 500 and Nasdaq Composite have moved by less than 1% for two weeks in a row. Wall Street’s fear gauge, the Cboe Volatility Index, has fallen as well.
Investors are turning their focus this week to Big Tech earnings. Amazon.com, Microsoft, Google parent Alphabet, Facebook parent Meta Platforms and Intel are among the companies scheduled to report in the coming days. Analysts expect profits to decline from a year ago at all but Amazon, according to estimates compiled by FactSet.
“It’s not like we’re all excited about growth,” said Daniel Morgan, senior portfolio manager at Synovus Trust. “We’re still seeing a pretty low bar coming into this quarter. I think we could get some surprises on the upside.”
So far, 90 of the companies in the S&P 500, or about 18% of the index, have reported results. About 77% of those companies have topped profit expectations so far, according to FactSet. Analysts are projecting profits to drop by 6.2% from a year ago, based on projected earnings and actual results. That would mark the largest decline since the second quarter of 2020.
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Coca-Cola shares edged 0.2% lower Monday, after reporting quarterly results that topped analyst estimates. Fox fell 2.9% after Fox News said Tucker Carlson is leaving the network. Walt Disney rose 0.1% after the network began a fresh round of layoffs. Bed Bath & Beyond shares fell 36% after the retailer filed for bankruptcy protection over the weekend.
Trading activity is likely to remain subdued this week ahead of the Federal Reserve’s May policy meeting “unless we see a material surprise coming through in the key earnings releases,” according to Laura Cooper, macro strategist at BlackRock.
“What we’re looking for is around the impact of the inflationary backdrop, as well as the slowing economic growth and the impact that that has on curbing consumer demand,” she said.
Some investors cited the impact of the banking upheaval on the real economy as a key question for Stocks Markets. Moody’s Investors Service downgraded the credit ratings of 11 regional banks on Friday.
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Regional banks have reported more stable deposit levels than some investors feared, but banks warned that it will face higher costs to retain customer funds, which will hit profits.
“We know the cost of capital has gone up. We know that valuations will be impacted,” said Ania Aldrich, investment principal at Cambiar Investors. “We know we are going to see issues, but are they going to be big enough to hit the economy?”
Government bond yields slipped Monday. The 10-year Treasury note settled at 3.514%, down from 3.570% Friday, while the 30-year bond closed at 3.728%. Bond prices rise when yields fall.
Oil prices rose. Front-month Brent crude futures gained 1.3% to settle at $82.73 a barrel. The S&P energy sector advanced 1.6%.