The earnings season started slow with only 41 S&P 500 companies reporting, with most of them being banks that exceeded earnings expectations. The pace is expected to pick up with 159 companies scheduled to report this week. The S&P 500 experienced a 3% decline for the week, leading to a 5.4% decrease quarter-to-date. Despite the slowdown, sales growth improved last week and is in line with expectations.
The upcoming week will see earnings reports from key companies such as Tesla, Meta Platforms, Microsoft, and Alphabet. Other notable companies reporting include Amazon, Apple, and NVIDIA. Financial sector earnings are expected to surpass estimates, thanks to the strong results from banks. However, the healthcare sector has been a drag on overall earnings, with companies like Bristol-Myers Squibb and Gilead Sciences underperforming due to specific issues.
Sales growth is expected to benefit from solid nominal GDP growth for the first quarter, providing a potential uplift for companies. Blended earnings growth is currently at -0.5% year-over-year, below the +3.5% expectation at the end of the quarter. Inflation concerns and economic growth uncertainties have impacted Treasury yields, with the likelihood of a June Fed rate cut dropping to less than 20%.
The recent inflation surprises have challenged the narrative of a soft landing for the economy, causing turbulence in the markets. The promise of artificial intelligence (AI) remains strong, but the high valuations of AI-related stocks have made them vulnerable to market fluctuations. The upcoming earnings reports from tech giants like Meta Platforms, Microsoft, and Alphabet will be critical to the AI narrative and overall market sentiment.
Despite the challenges, the Federal Reserve’s decision to hold off on rate cuts has prevented compounding inflation issues. The strong earnings growth story driven by the outperformance of the U.S. economy has provided some stability in the markets. While uncertainty remains, earnings data and company guidance during the ongoing earnings season could help alleviate macroeconomic concerns and provide clarity for investors.
Overall, the market is experiencing a period of volatility and uncertainty, driven by inflation fears and economic growth prospects. The upcoming earnings reports from key companies will be closely watched to gauge the health of the economy and market sentiment. Investors are cautiously optimistic about the earnings season’s potential impact on stock valuations and the overall market outlook.
