Investors are turning their attention to a new round of corporate earnings and the latest employment data as they cautiously assess the outlook for U.S. stock markets next week, amid rising oil prices and a more hawkish Federal Reserve.
U.S. equities have experienced a modest rebound over the past month, following earlier concerns about economic repercussions from the conflict in the Middle East. Strong corporate profits have bolstered bullish sentiment in U.S. stocks, offsetting other market headwinds.
Both the S&P 500 and the Nasdaq Composite closed on Thursday, recording their largest monthly gains since 2020. The S&P 500 rose more than 10% in April, while the Nasdaq surged over 15%, with both indices starting May on a positive note on Friday.
Angelo Kourkafas, Senior Global Investment Strategist at Edward Jones, commented, "On one hand, corporate profits are growing rapidly; on the other, oil prices and bond yields are under upward pressure. Markets rallied significantly in April, so as this tug-of-war continues, we may enter a period of consolidation."
This week, stocks remained largely unaffected by another surge in oil prices, with benchmark Brent crude briefly surpassing $120 per barrel, hitting a four-year high before retreating. Energy markets are closely monitoring the two-month conflict involving the U.S., Israel, and Iran, which has disrupted critical oil supplies. Although a ceasefire agreement has fueled the stock market rebound, ongoing tensions in the Middle East continue to keep investors on edge.
"Economic risks are escalating over time," said Jeff Buchbinder, Chief Equity Strategist at LPL Financial. "If Brent crude remains above $120 a month or two from now, with blockades still in place and possibly even bombs still falling, that would be a very different situation from today."
Another Busy Week for Earnings More than 100 S&P 500 companies are set to report earnings next week, placing markets at the heart of the earnings season. According to Tajinder Dhillon, Senior Analyst of Earnings and Equity Research at LSEG's Data & Analytics division, overall first-quarter earnings for S&P 500 companies are projected to increase by 27.8% year-over-year as of last Friday. This would mark the highest profit growth rate since the fourth quarter of 2021.
This week, mega-cap companies investing in artificial intelligence infrastructure reported mixed market reactions. Shares of Alphabet, Google’s parent company, surged on Thursday due to explosive growth in its cloud computing business, while Microsoft and Meta saw significant declines following disappointing results.
Data analytics firm Palantir, entertainment giant Walt Disney, and fast-food chain McDonald's are among the high-profile companies scheduled to report earnings next week.
Michael O'Rourke, Chief Market Strategist at Jones Trading, noted that earnings from chipmaker Advanced Micro Devices (AMD) and other semiconductor companies will also be closely watched, given their recent dramatic gains. Since the end of March, AMD’s stock has surged more than 80%, while the Philadelphia Semiconductor Index has climbed approximately 48%.
"This sector is driving market movements and dominating the broader market," O’Rourke stated. "Any related data will be crucial."
Rate Cut Hopes Dim as Jobs Data Take Center Stage According to economist surveys as of last Friday, the nonfarm payrolls report for April, due on May 8, is expected to show an increase of 60,000 jobs. While this figure is lower than the 178,000 jobs added in March, it represents an improvement from February’s sharp decline.
"Job market growth is slowing but holding steady," Buchbinder noted.
Data released on Thursday indicated that U.S. economic growth accelerated in the first quarter, driven by increased business investment in equipment fueled by the artificial intelligence (AI) spending boom.
The upcoming employment data follow recent signals that interest rate cuts—which would typically benefit equities—may be less likely this year. This week’s Federal Reserve meeting revealed surprising internal divisions, with three board members opposing the wording of the Fed’s policy statement, arguing that it did not adequately account for inflation risks that might necessitate further rate hikes.
This hawkish shift, combined with surging oil prices, pushed yields on benchmark U.S. Treasury notes to one-month highs. The closely watched 10-year Treasury yield hovered around 4.38% on Friday evening. Rising yields could pose challenges for equities, including higher borrowing costs for consumers and businesses.
"If the 10-year yield breaks above 4.5%, it will certainly capture more investors' attention," Kourkafas said. "At that point, investors may begin to reassess valuations and grow more concerned."
Comments