Weekend Update #227
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The S&P 500 index rose for the 9th consecutive day to end the week, which is the longest streak in two decades. A week full of earnings reports and conference calls solidified a general view that few sharp changes to business fundamentals occurred through April, even as soft economic data continued to trend negatively and investors worry over the impact of tariffs this year. Management teams deployed various strategies to quantify the potential financial impacts of tariffs or a recession to their business, which in sum seemed to suggest the rapid declines in valuations were driven more by investor fear of slowdowns rather than April’s underlying activity. Market participants also perceived the narrative on foreign trade to be somewhat improving as rumors of the U.S. and China moving closer to trade discussions continued. At the same time, Wednesday’s GDP report showed the U.S. economy fell into contraction for the first time since Q1 2022 as the biggest decline on record in net exports resulted from major front-loading by companies in order to get ahead of U.S. tariffs.
In economic data for the week, the March JOLTS reports showed a sharp decline in job openings while initial jobless spiked for the week ended April 26th. Consumer confidence fell to a low since May 2020, driven by consumers' expectations for the future economic environment falling to a new low since October 2011. GDP contracted -0.3% quarter-over-quarter in Q1, missing economists’ estimate of -0.2%. The ISM manufacturing index fell by the most in 5 months as production contracted by the most since 2020 following tariff announcements. Ending the week on a more positive note, April’s nonfarm payrolls jobs report showed the U.S. added 177,000 jobs in April, which was above economists’ estimate of 138,000. The unemployment rate held steady at 4.2%. The totality of the data show negative trends that are at risk of worsening if no progress is made on foreign trade deals, but bright spots like April's jobs report and confident management teams during earnings season drove the market’s upward move. Next Wednesday, May 7th, the Federal Reserve will issue a May interest rate decision, where economists expect another rate pause as economic data did not show a sharp inflection in the labor market nor inflation data.
In earnings reports for the week, Microsoft beat on earnings expectations driven by strong demand for Azure cloud while providing a stronger-than-expected outlook. Meta also delivered a positive earnings beat, stating the company is well-positioned to navigate the macroeconomic uncertainty and quantifying a potential dollar impact to capital expenditures if currently announced tariff measures remain in place. Apple shares underperformed as management failed to ease investor concerns over tariff outcomes. Amazon shares also fell after earnings as weak guidance was issued in anticipation of weaker consumers and higher tariff costs. General Motors cut the low end of its full year profit outlook by $5 billion due to auto tariff impacts. Other key companies that reported earnings this week included UPS, SOFI, HON, RCL, SBUX, V, SNAP, QCOM, CAT, LLY, CVS, EXAS, ABNB, RDDT, ROKU, CART, XOM, CVX, and DD.
Friday’s Close (Weekly Performance)
S&P 500 5,686,67 (+2.29%)
Nasdaq 17,977,73 (+3.42%)
Dow Jones 41,317,43 (+3.00%)
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