Earnings to the Rescue

Investing, like much of life, is a matter of focus. What shall we focus on today? You probably ask yourself that question constantly.

For the better part of three years, the market has been focused on inflation. First it was attuned to rising inflation. Then last year, it got obsessed with falling inflation or disinflation. Geopolitics was front-and-center when Russia invaded Ukraine two years ago. It then resurfaced when Israel was attacked by Hamas last fall. Recently, it’s been Iran’s involvement that has caused concern.

With that in mind, the stock market had a tough month as it had to contend with those fresh geopolitical concerns and continued worries about the path of inflation. So, it was only natural to see some giveback in stock prices after the explosive run from the end of October.

With that in mind, the stock market had a tough month as it had to contend with those fresh geopolitical concerns and continued worries about the path of inflation.

However, we ended the week on an up note because the market shifted at least part of its focus back to the main driver of asset prices: earnings. Some 40% of the S&P 500 reported first quarter results in the past week, including several of the so-called Magnificent 7 tech companies. Alphabet, Meta, Microsoft and Tesla all gave fresh insights last week.

Aside from Tesla, the other three delivered earnings that topped Wall Street estimates . Some even showed AI boosting sales growth. That’s exactly what we were hoping to see. To be sure, AI is not a broad sales driver yet, but its potential is starting to be felt by some of the first-movers. That’s encouraging and a major reason the market has held up. In short, American business continues to be the envy of the world and when the markets are focused on that, they do well.

These reports from individual companies echo the latest GDP report if you’re willing to look under the hood a bit. Consumer spending continues to hold up. As we’ve been saying time and again, as long as people have jobs, they’ll continue to spend.

These reports from individual companies echo the latest GDP report if you’re willing to look under the hood a bit.

If there’s one Achille’s heel to this economy, it’s inflation. The path to 2%–that soft landing–looked all but assured at the end of last year. But, 2024 has brought renewed fears inflation may stay higher-for-longer and may be more challenging to extinguish. Expectations for rate cuts have largely been taken off the board this year. And, some economists believe the Fed may need to actually raise rates to restore price stability.

The market does not yet seem to be pricing for that outcome. It would be upset to say the least.

Fortunately, we don’t have to wait long for new insights on the Fed’s path. Policy makers meet later this week. We don’t expect them to move rates, but we’ll be listening for how they’re leaning.

Fortunately, we don’t have to wait long for new insights on the Fed’s path.

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All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer.