The earnings season for the first quarter will pick up its pace significantly during the next week.
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Results from high-profile stock market winners this year including Netflix (NASDAQ:NFLX) and Tesla (NASDAQ:TSLA) will headline a busy program for investors watching corporate results. This comes after earnings from major banks unofficially kicked off the proceedings on Friday.
Those who are more closely monitoring macroeconomic trends and the impact this data could have on the Federal Reserve in the following month will have some breathing room thanks to the economic calendar, which will offer some relief.
Last week, increases were recorded by all three of the most important indices, with the Dow Jones Industrial Average climbing 1.1% to lead the way for the week’s gains. On Friday, JPMorgan (JPM) led a rally in bank stocks, climbing more than 7% for its greatest day since 2020. This performance was its highest since the year 2020.
“This week, the initial earnings from a few very large banks suggest that the quick work of the FDIC and Federal Reserve in the wake of Silicon Valley Bank’s failure [has] prevented broader damage,” strategists at Bespoke Investment Group wrote in a note to clients on Friday. “This week, the initial earnings from a few very large banks suggest that the quick work of the FDIC and Federal Reserve in the aftermath of Silicon Valley Bank’s failure [has] prevented broader damage.”
“Lenders including PNC Financial, JPMorgan, Wells Fargo, and Citi reported on Friday, and the sigh of relief from markets was palpable.”
The results of JPMorgan showed that the bank “has been a port in the storm,” as an analyst from Wells Fargo named Mike Mayo said in a note on Friday. Mayo stated that the findings that were made public on Friday had him wondering: “What banking crisis?”
During Friday’s conference call, JPMorgan Chief Executive Officer Jamie Dimon went as far as telling an analyst, “I wouldn’t use the word credit crunch if I were you.”
Nevertheless, Dimon issued a warning that the US economy will face hurdles in the months ahead, stating in the company’s earnings statement that “the storm clouds that we have been monitoring for the past year remain on the horizon,” and that “the turmoil in the banking industry adds to these risks.”
Dimon pointed to variables such as rising interest rates, the conflict in Ukraine, and rising geopolitical tensions as examples of things that pose a threat to the economy.
The financial industry will continue to be a focal point in the early part of the week that is to come, with results from Charles Schwab (SCHW) on Monday providing a vital look at how certain corporations at the center of the bank crisis that occurred one month ago performed throughout the quarter. When the situation with the banks was at its worst in March, Charles Schwab felt forced to reassure investors that the firm’s liquidity was still in good shape by making a public statement.
The stock of the brokerage firm has fallen by about forty percent so far this year, with March alone accounting for a loss of more than thirty percent. When consumers move money out of “sweep accounts” and into higher-yielding alternatives, investors have warned that this will put pressure on Schwab’s deposit base, which might have a negative impact on the company’s quick access to capital.
The findings of larger lenders and investment banks, such as Bank of America and Goldman Sachs, which are scheduled to be released on Tuesday morning, will provide another indication of how these institutions fared amid the volatility that was centered on smaller, regional lenders.
When it comes to economic data, investors will have a lighter schedule to work with, but the monthly run of housing data will kick up, with data on homebuilder mood, home prices, and housing starts all set to cross the wires. This will be a busy week for the housing market.
The Federal Reserve’s discussion of the economic environment at its next policy meeting, which is scheduled to begin on May 2 and will be preceded by the release of the Beige Book report from the Fed on Wednesday, which will help set the table for that conversation. According to information provided by the CME Group, as of the end of the previous week, investors were placing an almost 80% probability on the Federal Reserve increasing interest rates by 0.25% in its subsequent policy announcement.
The most important piece of economic news from the last week was released on Wednesday morning when the Consumer Price Index (CPI) for March indicated that headline inflation had slowed to an annual rate of 5% in March while “core” inflation — which includes the more volatile expenses of food and energy — climbed 5.6% over the course of the previous year.
However, statistics on retail sales and industrial production that were released on Friday, along with the figure on initial claims that was released on Thursday, revealed that the economy is weakening on the edges and would likely decline more in the coming months.
In a note to clients on Friday, Oren Klachkin, the chief US economist at Oxford Economics, stated that “incoming data signal the economy ended the first quarter on a weak note, with consumers less willing to spend, labor market conditions softening, and industrial sector output on a negative track.” Klachkin made these statements in response to data that indicated consumers were less ready to spend.
We anticipate that the first quarter of this year will wind up being the greatest quarter for the economy, despite the fact that tighter credit conditions and higher interest rates will bring GDP growth to a crawl in the second quarter and cause a recession in the second half of the year. Price pressures will be relieved as a result of the weakening economy, but not to the extent that the Federal Reserve will attain its 2% inflation objective any time soon.
Because of the Fed’s need to balance risks that each call for a different policy response, investor debate about the Fed’s next move is expected to become even more intense in the coming months. This is because the combination of a slowing economy and persistent inflation will likely make it more difficult for the Fed to propel the economy forward.
In a note to clients that he sent out on Friday, economist Marc Giannoni of Barclays wrote: “Fed communication earlier this week suggests that the debate about the course of policy is about to heat up.”
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