Before The Bell
The final trading week of April, a month that so far has been good to those long equities, will be a very busy one for Wall Street. The focus of investors, following a light news day to start the five-day stretch, will be on the ongoing first-quarter earnings season—which has so far proven supportive for equities—and a number of important reports from the business beat. The Federal Reserve’s Federal Open Market Committee Meeting and accompanying monetary policy statement on Wednesday afternoon will provide investors with clues about the state of the U.S. economy, the recovering labor market, and the inflation situation. Investors should note that trading, which is looking at a mixed start this morning, is often constrained in the days leading up to the central bank’s monetary policy decision. And throw in President Biden’s first address to Congress on Wednesday night and perhaps the major market movement, if any, will not come until the latter half of this week.
The ongoing earnings season has drawn a great deal of the market’s attention over the last fortnight, and rightfully so, as a strong showing may be needed for stocks to move higher off of their already lofty valuations. So far the news from Corporate America has not disappointed, but also providing a boost to the market has been some encouraging reports on the economy, including last week’s data on initial weekly jobless claims and new home sales. The latter gave a boost to the homebuilding and housing-related stocks on a bullish day of trading last Friday. This week, the news from the business beat is ratcheted up a notch, with reports due on durable goods orders (this morning), consumer confidence (tomorrow), the initial reading on first-quarter GDP (Thursday), and personal income and expenditures (Friday). As noted, the Federal Reserve’s interest-rate decision on Wednesday and commentary from Federal Reserve Chairman Jerome Powell will provide more clues about the labor market and pricing. The latter sentiment may play a role in how the high-growth sectors, like technology, fare during the back half of this week.
The technology sector will also highlight the reports from Corporate America. Among the 10 Dow-30 reports this week, investors may be most interested in the quarterly results and outlooks from technology behemoths Apple (AAPL) and Microsoft (MSFT). The latest results from Amazon.com (AMZN) and Facebook (FB) will also bring the attention to the technology space. Given that technology has lagged somewhat in recent months, good showings and guidance from the technology giants may give a boost to their stocks this week. Investors should note that shares of the technology companies that reported last week traded more so on guidance and outlooks than most recent quarter results. That was the case for Intel’s (INTC) stock on Friday. The Federal Reserve’s commentary on pricing—and inflation pressures or lack thereof—may also have an impact of the performance of the high-growth sectors. Clearly, nimble, short-term traders may want to give the technology space a close look this week for the aforementioned reasons.
Meantime, investors will want to keep close tabs on the latest news out of Washington D.C. On point, the market backtracked a bit last Thursday—but recovered much of the setback on Friday—on reports that the Biden Administration was considering raising the top capital-gains tax rate on millionaires to 39.6%, from its current 20% level. With the market looking priced for perfection these days, such reports will tend to have a swift—even if short-lived—impact on trading. The stocks that continue to fare well recently are those of the infrastructure companies and green energy concerns. With the Biden Administration’s push for more environmentally friendly policies, the latter group may continue to do well in the coming months. Investors also should note that the high-growth crypto currency market got slammed on the capital-gains tax rate talk last week. There is also a concern on Wall Street that the strong unrealized gains registered from positions in technology are vulnerable to being partly unwound if the proposal of a higher capital gains tax looks likely to become a reality in 2022. As noted, President Biden will address Congress on Wednesday night and is likely to lay out a number of items on his agenda that may prove to be hot-button topics for Wall Street.
Before the market open, the equity futures are pointing to mixed start to the trading day, though none of the major averages are expected to be too far remove from the neutral line. A similar story is being told overseas, with the major European bourses bouncing around the breakeven mark, as trading moves into the second half of the session on the Continent. Speaking of Europe, investors should note that the stocks of the travel companies are likely to get a boost from reports over the weekend that the European Union is poised to allow US tourists to visit this summer if they have been fully vaccinated against the coronavirus. After today’s closing bell, the focus of traders will turn to battery-powered automobile maker Tesla (TSLA), which will report its latest quarterly results. Stay tuned.
– William G. Ferguson
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
