Earnings Save US Market from Inflation Shock?

Week in review.

The last job report - US Non-Farm payroll (NFP) was finally out on Fri, 05 Apr 2024.

It took US market’s breath away. (see below)

• Actual jobs creation (303,000) outpaced market estimates (214,000) by +41.59%.

• Showcasing US labour market resiliency.

• Actually, private sector - ADP NFP @184,000, released on Wed, 03 Apr 2024, that also outpaced estimates by +24.32% — had removed the guess-work for Friday’s NFP.

• Tradeoff: The good economic data could result in the Fed’s delay to trim interest rates.

• March’s consolation was both (a) Unemployment rate and (b) Average hourly earnings (YoY) were inline with forecasts.

Friday - end of trading week.

Solid jobs data helped market to regain some of its lost grounds. (see above yellow highlights)

This was after Thursday’s decline when Fed President Neel Kashkari warned that the Fed may not cut interest rates at all in 2024, if inflation progress stalls.

When market called it a week:

• DJIA: +0.80% (+307.06 TO 38,904.04).

• S&P 500: +1.11% (+57.13 to 5,204.34).

• Nasdaq: +1.24% (+199.44 to 16,248.52)

Week of 08 Apr to 12 Apr.

US market will be “mixed - jittery & flatline” all over again this week, at least for Monday & Tuesday.

This is because 2 inflation reports will be released, back-to-back this week:

• Wed, 10 Apr 2024 - Consumer Price Index (CPI).

• Thu, 11 Apr 2024 - Producer Price Index (PPI).

Consumer Price Index (Estimates) for March 2024.

• CPI (MoM) - 0.3% (see above) vs Feb’s 0.4%.

• CPI (YoY) - 3.4% vs Feb’s 3.2%.

• Core CPI (YoY) - 3.7% vs Feb’s 3.8%.

US market should rally if Core CPI dips or matches analysts’ forecast and vice versa.

Producer Price Index (Estimates) for March 2024.

• PPI (MoM) - 0.3% (see above) vs Feb’s 0.6%.

• PPI (YoY) - 2.3% vs Feb’s 1.6%.

• Core PPI (YoY) - 2.3% vs Feb’s 2.0%.

Let The Earnings Begin.

This week also marks the start of the Earnings Season reporting all over again.

Broadly, Wall Street expects the first quarter (Q1) to set the tone for a robust year of earnings growth among S&P 500 companies.

Consensus expects first quarter growth for S&P 500 companies of 3.2% compared to the year prior.

For the full year, Wall Street sees S&P 500 earnings growing 10.9%. (see below)

Two main things to watch out for upcoming earnings reports:

• Which industries (sectors) are seeing profits (earnings) grow?

• What do company leaders think about how the current economy will affect their business for the rest of 2024?

Looking back at 2023’s rally, it has largely been driven by the Magnificent 7 along the Artificial Intelligence (AI) theme.

Investors now are especially interested to ascertain in whether profits are growing in other industries; besides Technology — the remaining 493 companies (S&P 500 - Magnificent 7).

Recently, its “these other industries” that have supported US market’s early 2024 rally to become more widespread.

As per $Deutsche Bank AG(DB)$, Chief equity strategist - Binky Chadha:

• He believes there will be clear signs of a shift (rotation) in earnings this quarter.

• He expects large tech companies to have slower profit growth compared to previous quarter.

• He is not expecting a sudden drop in tech earnings in Q1 2024.

• He does however, thinks that a slower IT growth combined with faster “other industries” growth could lead to more movement (rotation) in the US market.

Proof of Concept.

What better way to prove Mr Chadha’s theory of sector rotation than Fri, 12 Apr 2024 quarterly earnings reporting companies. (see below)

The Financial sector companies will be reporting their earnings: (see above & below)

• $JPMorgan Chase(JPM)$.

• $Wells Fargo(WFC)$.

• $BlackRock(BLK)$.

• $Citigroup(C)$.

• $State(STT)$.

If inflation data has dampened US market earlier in the week, here’s hoping that Friday will be Redemption Day.

Conversely if inflation is aligned with estimates or dips (fingers crossed!), could Friday be another day of record breaking for the S&P 500?

All we wish is for US market to scale higher, right !

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