MW Goldman hasn't given up on the stock-market rally, but is starting to get nervous
By Barbara Kollmeyer
Critical information for the U.S. trading day
Even as the U.S. stock market has been rolling south lately, it appears hope springs eternal for investors when it comes to earnings.
Nearly two-thirds of 409 respondents to a Bloomberg survey are counting on corporate results to boost the S&P 500 index SPX. That's the highest level of confidence for profits since the question first appeared in October 2022.
Looking at that another way, overconfidence in earnings delivery may be a risk on the horizon for stocks. That's as beleaguered Tesla $(TSLA)$ lines up to announced its results later Tuesday, with Microsoft $(MSFT)$, Alphabet $(GOOGL)$ and Meta $(META)$ also due this week.
Read: Technology stocks show signs of 'breaking down' ahead of Big Tech earnings
Our call of the day comes from Goldman Sachs strategists Dominic Wilson and Kamakshya Trivedi who talk of "paradise postponed," and near-term risks that are emerging for stocks. They assure that's "not fatal." Yet.
For much of the year, the strategists say they've been "quite sanguine" about the effect that no Federal Reserve interest rate cuts this year would have on stocks.
"This is because we have seen upward pressure on rates as mostly having been driven by improving growth prospects; and because, for equities, we think the exact easing profile is less important than that the Fed stands ready to cut if growth falters," they said.
But they've also maintained that "sticky" inflation data would pose a central risk to their longer-term view on stocks. And recent shifts, such as persistent inflationary pressures, are driving home the possibility of no Fed cuts this year, "proving "the first real challenge to equity markets in nearly six months", they say.
The strategists now see a higher risk that the Fed will turn more hawkish - i.e. tighter rather than looser policy - with front-end Treasury yields clearly on the rise. The current episode is also being considered more of a "policy shock," than it has up to this point, say Wilson and Trivedi.
With the market more worried about inflation and any "policy shock," the path to relief would require improvements on monetary policy outlook and resolutions over geopolitical issues, they say.
A "good opportunity" to press the bullish case for stocks will come once a reset in interest rate pricing has been completed, especially if the Fed hangs onto its easing bias.
"But the immediate catalysts for that shift are less clear and it is harder than before to manage a long position through options. Without a bigger discount, we think there may be further choppiness ahead," said the pair.
As for where to invest, Goldman offers this advice: "A higher chance that monetary easing comes later and slower is likely to favor the high-quality parts of the market and weigh on small-caps, while the greater prospect of rate cuts outside the U.S .means that non-U.S .equity markets (FX-hedged) may face a friendlier growth/inflation mix in the near term."
The markets
U.S. stock index futures (ES00) (YM00) (NQ00) are tilting higher early Tuesday, while bond yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y are steady. Gold (GCM24) (GC00) is down another $33 to $2,313/oz. Silver (SIK24) (SI00) is also taking another dive.
The buzz
PepsiCo $(PEP)$ stock is down even after a profit and revenue beat. A bunch of others, including UPS $(UPS)$, General Motors $(GM)$ and Halliburton $(HAL)$, are still to come later in the session.
Later, it's the main event, with Tesla reporting, along with Texas Instruments $(TXN)$ and Visa (V).
Read: Tesla earnings day is around the corner. So far, robotaxis are 'just a buzzword.'
Apple's $(AAPL)$ iPhone sales fell 19% in China during the first quarter, says this research firm.
Novartis shares $(NVS)$ are up after the Swiss pharma giant boosted its outlook after forecast-beating profit and sales.
The Federal Trade Commission sued to block Tapestry's $(TPR)$ $8.5 billion deal for Capri $(CPRI)$ to combine Coach, Kate Spade and Michael Kors brands.
The S&P flash U.S. services and manufacturing sector purchasing managers indexes are due at 9:45 a.m., followed by new home sales at 10 a.m.
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The chart
The S&P 500 broke a six-straight losing run on Monday. Whew. But even if it hadn't, panic buttons needn't have been readied, says Henry Allen, macro strategist at Deutsche Bank. His data crunching shows that the index's median performance after 6 consecutive declines has been further gains over the next month, 3 and 6 months. Since 2000, there have been 17 previous occasions when the S&P 500 has been on a six-straight losing run, he notes.
Top tickers
These were the top-searched tickers on MarketWatch as of 6 a.m.
Ticker Security name NVDA Nvidia TSLA Tesla SPOT Spotify Technology AMC AMC Entertainment AAPL Apple TSM Taiwan Semiconductor Manufacturing SMCI Super Micro Computer AMZN Amazon NIO Nio AMD Advanced Micro Devices
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-Barbara Kollmeyer
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April 23, 2024 06:50 ET (10:50 GMT)
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