The futures market is indicating a mixed open to today’s trading. Investors are digesting several earnings reports made pre-trading. Reports have rolled in from consumer-goods company Procter & Gamble (PG), oilfield services provider Schlumberger (SLB), hospital operator HCA Healthcare (HCA), miner Freeport-McMoRan (FCX), and enterprise software developer SAP SE (SAP).
There is no major macroeconomic news scheduled for release, but investors will get a better view of the health of the economy this morning when Standard & Poor’s unveils its “flash” U.S. purchasing managers index readings on manufacturing and services for the month of April. Manufacturing is expected to show further softness, while services probably continued to expand, albeit most likely at a slower pace. Also, later today, Federal Reserve Governor Lisa Cook will discuss business activity and the central bank’s rate-setting policy.
Thus far, it seems that the major domestic market indexes will be flat to down for all of this week. The broader Standard & Poor’s 500 has performed slightly better than the blue-chip Dow Jones Industrial Average and the NASDAQ tech composite has lagged behind both of these indexes. Roughly 10% of companies have reported March-quarter operating results. A majority of these (about 85%) have beaten reduced Wall Street estimates, but earnings are still more than 6% lower, year on year. Last Friday, top U.S. banks JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) turned in solid revenues and earnings, notwithstanding challenges in the financial sector.
This week, Goldman Sachs (GS), Morgan Stanley (MS), Bank of America (BAC), Charles Schwab (SCHW), BNY Mellon (BK), US Bancorp (USB), Truist Financial (TFC) and, among others, KeyCorp (KEY) unveiled their results. Though there was weakness in certain lines of business, most visibly trading and capital markets, the larger institutions, leading in these areas, held up well in the quarter. The regionals, more reliant on consumer and commercial banking business, are suffering deposit outflows, but generally said they have been manageable, to date. Fortunately, the distress felt by SVB Financial Group, Signature Bank, and Credit Suisse Group has not yet spread to industry peers, and the greater economy, in a big way.
Despite some high-profile stumbles, e.g., car maker Tesla (TSLA) and telecom AT&T (T), we believe this earnings season will turn out to be a reasonably good one, overall. That would lend support to stock valuations leading up to the Federal Reserve’s early May meeting. We do note the latest manufacturing, services, housing, and employment data have pointed to an easing of momentum in the economy. But inflation, though still running high, has pulled back some. On balance, the consensus on Wall Street is that the Fed will probably raise short-term interest rates by another one-quarter of a percentage point, to 5.00%-5.25%. Investors are hopeful that the central bank will hold rates steady for a limited period, and then start cutting them, possibly late this year. With inflation well above the Fed’s 2% target, however, an additional rate hike, beyond the expected move in May, cannot be ruled out. Also, cuts may not occur until next year.
At this juncture, “uncertainty” is The Street’s watchword. The remainder of the March-quarter earnings season, inclusive of influential financial and cyclical industrial stocks, will affect broader market performance, as will inflation and employment numbers and the Fed’s rate actions and policy guidance. Diversification, with a healthy weighting of top-quality large-capitalization stocks, appears to be an appropriate strategy for most individual investment portfolios, until the economic view clears up.
At the time of this article’s writing, the author did not hold any positions in any of the companies mentioned.
CLICK HERE for more information on our services or call 1-800-VALUELINE (1-800-825-8354). Our account managers are available Monday through Friday, 8:00 AM to 6:00 PM Eastern Time.
