Welcome to my video presentation for Monday, April 29, in which I interpret last week’s market action and provide a preview of what to expect in the week ahead. The article below is a condensed transcript; my video contains a “deeper dive” with additional details and several charts.

Last week was dominated by corporate earnings, focusing on the technology sector’s “Magnificent Seven.” These mega-cap tech firms have largely met or exceeded projections, contributing significantly to the S&P 500’s recovery from earlier losses in April.

As the broader stock market wobbled last week due to worrisome economic data, these seven stalwarts rode in to save the day:

Alphabet (NSDQ: GOOGL); Amazon (NSDQ: GOOGL); Apple (NSDQ: AAPL); Nvidia (NSDQ: NVDA); Meta Platforms (NSDQ: META); Microsoft (NSDQ: MSFT); and Tesla (NSDQ: TSLA). In the coming days, stay focused on other Big Tech stocks, not just these seven, as further Q1 earnings releases pour in.

The Magnificent Seven returned more than 106% in 2023, doubling the NASDAQ 100’s nearly 54% gain and significantly outperforming the S&P 500’s 24% gain.

This year, Tesla and Apple face singular headwinds. Tesla is encountering greater competition from overseas electric vehicle makers and Apple is grappling with a shrinking market in China. Apple is expected to report earnings on May 2 after market close.

Overall, the seven in aggregate are poised to continue on an upward trajectory in 2024, largely due to the exponential expansion of artificial intelligence (AI).

The previous week marked the peak of earnings season, with one-third of S&P 500 companies reporting results, accounting for 40% of the index’s total market capitalization.

Results have generally surpassed expectations, with around 80% of companies exceeding earnings projections by approximately 10%, according to FactSet. The tech bellwethers have generally beaten consensus projections on the top and bottom lines, which bodes well for the economy and stock market this year.

Now the downbeat news: The U.S. economy grew slower than expected in the first quarter of 2024 as inflation re-accelerated through the first three months of 2024 (see my video for charts).

However, while the headline U.S. gross domestic product (GDP) for the first quarter showed a slowdown, underlying details reveal a more positive story. Domestic demand grew at an annualized rate of 2.8%, bolstered by robust consumption, business investment, and housing activity.

The Federal Reserve’s favorite gauge of inflation, the personal consumption expenditures price index (PCE) suggests a slower-than-expected progress on curbing inflation, signaling that interest rates will likely remain elevated for an extended period. However, the likelihood of rate hikes resuming is low, with potential for rate cuts to commence around September, given current economic conditions.

The latest core PCE inflation data (for March) echoed earlier figures for the consumer price index (CPI), indicating sluggish progress towards the Fed’s inflation target of 2%. This, coupled with a resilient economy, suggests that the Fed will maintain its cautious approach towards rate cuts.

The main U.S. stock market indices stayed aloft last week and finished in the green, despite worrisome economic data. Year to date, the major indices are in positive territory as follows: the Dow Jones Industrial Average +1.5%; the S&P 500 +6.9%; and the tech-heavy NASDAQ +6.1%. The MSCI EAFE, a gauge of international stocks in developed countries (excluding the U.S. and Canada), is up 1.3%.

Crude oil prices have risen this year, but only modestly. That’s surprising, in light of current geopolitical turmoil, but traders are betting that decelerating economic growth will weigh on energy demand.

The big headwind has been the rise of the benchmark 30-year U.S. Treasury yield. The yield has been climbing as inflation fears resurface. Bond yields and stocks tend to move in opposite directions. The yield’s persistently elevated level reflects Wall Street’s view that rates are likely to remain higher for longer.

I recommend utilizing market dips to adjust asset allocations, transitioning excess cash into a mix of equities and bonds based on your customized investment strategy.

Tech stocks have been driving the market recovery, with corporate profits growing albeit at a slower pace. Inflationary concerns persist, influencing interest rates, but the overall backdrop remains favorable for equities despite increased volatility linked to Fed policy uncertainties.

The Magnificent Seven tech behemoths make up about 29% of the S&P 500’s market cap. They’re projected to achieve a 47% earnings increase this earnings season compared to the same period last year, outperforming the S&P 500’s modest 2% growth expectation.

The tech sector experienced impressive growth in 2023 that’s extending into 2024, fueled by substantial earnings increases rather than speculative market bubbles. Optimism over AI is a key factor.

While tech giants have led this charge, the market is poised for a broader rally across various sectors as the year progresses.

The week ahead…

The following important economic reports are due in the coming days:

S&P Case-Shiller home price index (20 cities), consumer confidence (Tuesday); ADP employment, construction spending, ISM manufacturing, job openings, Federal Open Market Committee (FOMC) interest-rate decision, Fed Chair Jerome Powell press conference, auto sales (Wednesday); initial jobless claims, factory orders, U.S. productivity (Thursday); U.S. unemployment rate, hourly wages, and ISM services (Friday).

The big news, of course, will be the FOMC decision on rates and then Powell’s remarks. Reaffirmation of the monetary status quo is expected, with neither a rate cut nor a hike.

I predict a continuation of current monetary policy measures in the near term, with a potential for rate reductions in the latter part of the year as inflationary forces ease.

I advocate a cautious yet proactive trading approach. Given the uncertain trajectory of interest rates and market conditions, maintaining a balanced portfolio weighted towards equities remains prudent. Diversifying into undervalued segments of the market and gradually reallocating cash into longer-term investments can capitalize on emerging opportunities while managing risk effectively.

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John Persinos is the editorial director of Investing Daily.

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