GDP, PCE or Earnings affect Market This Week?

JC888
04-30

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On Thu, 25 Apr 2024, the US Gross Domestic Product (GDP) report for Q1 2024 (preliminary) was released with little fanfare.

It came out a day before the Fed’s go to Personal Consumption Expenditure (PCE) report.

US’s Q1 2024 GDP.

  • Preliminary readings showed that US economy grew much slower than expected to start 2024.

  • For Q1 2024, US real GDP rose at annual rate of 1.6%. (see above)

  • This is -0.9% lower than analysts’ forecast (2.5%) and Q4 2023’s 3.4%.

  • The report also showed consumer prices rising, making it harder for the Fed to control inflation without hurting the economy.

Personal Consumption Expenditure (March 2024)

  • PCE - key inflation barometer the Fed watches closely, showed few signs of letting up in March.

  • Core PCE came in at 2.8% YoY, the same as February 2024 data.

  • Inflation was +0.2% higher than Wall Street estimate of 2.6%.

What is fueling PCE?

  • A robust labour market along with positive real wage growth continues to provide a solid foundation to consumer outlays.

  • Labour market has seen job openings cool but also has experienced a strong +42.92% monthly nonfarm payroll growth to 303,000 jobs for March 2024.

  • The labour market is more Goldilocks-like where it's not super-hot but also not super cold.

S&P 500 Corporate Earnings.

Enclosed is a summary of US corporate earnings (per Factset perspectives) as of 26 Apr 2024.

Earnings by Sector (so far)

Earnings by Sector (Graphics) so far

Good News:

  • More companies than usual are beating earnings estimates (77% vs. 10-year average of 74%).

  • Earnings growth is slightly higher than expected (3.5% vs. 0.6% last week).

  • On track for 3rd quarter in a row of earnings growth.

  • Revenue growth is also positive (4.0%).

Sector Leaders:

  • Earnings: Communication Services, Utilities, Information Technology, Consumer Discretionary

  • Revenue: Communication Services, Information Technology, Health Care, Financials

  • Both comm services & technology continue to be “leaders” when it comes to earnings & revenue.

Looking Ahead:

  • Analysts expect continued earnings growth throughout 2024.

  • Stock valuations (P/E ratio) are down slightly from the end of Q1.

  • Many more companies will report earnings next week.

My viewpoints : (mine & mine only)

  • Above are blended results, combining reported earnings with estimates for companies that have not reported yet.

  • As earning results are continuously announced, the above assessment will evolve.

  • Also, historical averages are based on all companies, not just the ones that have reported so far.

  • On inflation, I do not think it will come down anytime soon; not unless “drastic” action is taken.

  • Looking at Core PCE annualized 3 months percentage change, it last dipped below 2% in December 2023.

  • Thereafter, it is trending above the 2% on an upwards momentum.

  • The Fed will be dragging its feet to raise interest rate higher.

  • And definitely not under the auspice of the Biden administration on the run up to November election.

  • If GDP growth continues to slowly decelerate and inflation takes off strongly in an upwards direction, expectation of a Fed interest rate cut in 2024 will start to look increasingly more out of reach.

Coming Week - 29 April 2024.

With the month of May 2024 almost at the doorstep, both (a) US official reports and (b) Corporate earnings will either:

  • Collaborate to aid US market to recover the grounds lost since 11 Apr 2024.

  • Compete for investors’ attention, “muddling” overall sentiments.

(1) Reports to be released.

  • Consumer confidence report - Tue, 30 Apr 2024.

  • ADP employment report - Wed, 01 May 2024.

  • Jobs Opening and Labour Turnover Survey (JOLTs) - Wed, 01 May 2024.

  • FOMC meeting - 01 May 2024.**

  • Weekly jobless claims - Thu, 02 May 2024.

  • Non farm payroll - Fri, 03 May 2024.

(2) Corporate Earnings.

AM - morning. PM - evening (after market closing).

Personally, I think US market will be jittery again on the run up to Fed chair Jerome Powell post FOMC meeting on Wed, 01 May 2024. Hold onto your seat, its going to be a bumpy ride !

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  • Do you think US official reports out will influence investors over corporate earnings?

  • Do you think S&P 500 companies’ earnings will lift US market higher with or without US official reports’ help ?

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