Despite a sluggish finish on Friday, the stock market achieved its second consecutive winning week as investors prepare for the commencement of the first quarter earnings season.
Last week saw notable gains across major indices, with the S&P 500 rising more than 3.5%, the Dow Jones Industrial Average up by 3%, and the Nasdaq Composite climbing over 4%. All three indices, while still down for the year, are now within 1% of recovering their earlier losses.
In the upcoming week, a slew of major banks is scheduled to report earnings, including JPMorgan, Wells Fargo, Bank of America, and Citigroup, alongside investment titans Morgan Stanley and Goldman Sachs. Additionally, streaming service Netflix is expected to reveal its quarterly results, although the economic data calendar appears to be relatively quiet.
Investors will also be closely monitoring geopolitical tensions in the Middle East, particularly the US-Iran negotiations regarding a fragile ceasefire taking place this weekend.
Last week brought mixed messages from critical economic indicators. Inflation spiked the most in four years, while consumer sentiment hit an unprecedented low. Specifically, the Consumer Price Index (CPI) for March recorded a 0.9% increase in prices, the highest monthly rise since June 2022, driven primarily by surging energy costs stemming from the US-Iran conflict. Nevertheless, some analysts express cautious optimism that oil prices, which have significantly influenced this inflation spike, could stabilise in the forthcoming weeks.
Consumer sentiment, as measured by the University of Michigan’s survey, fell to a record low, with the majority of responses collected prior to last Tuesday’s ceasefire announcement. Oliver Allen, a senior economist at Pantheon Macroeconomics, pointed out that this decline in sentiment signals a potential slowdown in consumer spending, though the extent remains uncertain.
Rick Rieder, BlackRock’s chief investment officer for global fixed income, echoed this sentiment, suggesting that inflation data reflect longer-term pricing trends rather than isolated events. He noted that the more critical aspect is the impact of soaring oil and commodity prices on the global economy in the near future.
The ongoing conflict in the Middle East has made oil prices a pivotal factor for financial markets. As of late last week, West Texas Intermediate (WTI) crude oil was trading near $98 per barrel, a significant surge from approximately $68 prior to the escalation of conflict. Should the futures market predict a downward adjustment in oil prices, stock markets could potentially rebound to their previous highs.
While the broader market may appear robust, significant divergence exists within sectors, particularly affecting software stocks. The iShares Software Sector ETF (IGV) plummeted more than 7% over the past week and is down 30% year to date, with specific stocks like AppLovin, Intuit, and ServiceNow facing declines exceeding 40%.
Conversely, companies engaged in the hardware side of artificial intelligence are performing well, as evidenced by the VanEck Semiconductor ETF (SMH), which has seen a rise of over 20% this year. Key players in this sector, such as Intel and Applied Materials, have reported gains exceeding 50%.
Looking ahead, the economic and earnings calendar shows a series of important events, including:
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Economic Data Releases:
- Existing home sales
- ADP employment figures
- Producer Price Index (PPI) metrics
- Upcoming Earnings Reports:
- Major banks like Goldman Sachs, Bank of America, and JPMorgan will announce their results, with additional reports from companies such as Netflix and Prologis later in the week.
In summary, while the stock market demonstrates resilience, caution remains paramount as economic data and geopolitical developments unfold. Investors are increasingly attuned to price movements in oil, which could play a crucial role in market direction in the coming weeks.
