A Slow Week On the Cards for S&P 500 Investors
The hustle and bustle of
corporate earnings, job reports, and the FOMC meeting are behind
us, and next week might be a bit more low-key in
Despite bank turmoil and a
slowing economy, job growth exceeded expectations in April, as
reported by the Labor Department on Friday. Nonfarm payrolls
increased by 253,000, beating Wall Street estimates of 180,000. In
addition, the unemployment rate was 3.4%, the lowest since 1969,
and average hourly earnings rose 0.5%, the highest monthly gain in
a year, with wages increasing 4.4% annually.
The strong numbers increase the
likelihood of a June interest rate hike by the Federal Reserve.
Wall Street reacted positively, with the Dow Jones Industrial
Average rising almost 400 points, Treasury yields increasing, and
robust earnings reports from Apple and banking stocks.
Is a recession on the cards?
The economy may be headed toward
a possible recession later in the year, as Gross Domestic Product
(GDP) increased only by 1.1% in Q1. Signs of weakness in consumer
spending have been evident, such as a 0.7% decrease in credit card
spending from a year ago.
Despite recession fears and bank
troubles, the Federal Reserve has raised its benchmark interest
rate, though it acknowledges the pressure it may put on households.
Fed Chairman Jerome Powell stated that the economy would likely
face further challenges from tighter credit conditions, as the
central bank aims to bring inflation down to a 2% annual
Rising wages contribute to
inflation pressure, with Powell indicating that a 3% annual wage
gain is consistent with the FedU+02019s 2% mandate.
Corporate earnings remain under focus
After a bustling week of
corporate earnings, next week might seem a little more subdued.
However, we can still anticipate earnings updates from several
such as Airbnb (NYSE: ABNB), Disney (NYSE:
Electronic Arts (NASDAQ: EA).
As of Friday, 85% of
S&P 500 firms have
reported earnings. Of these, 79% have exceeded expectations on
earnings per share (EPS), while 75% have exceeded revenue
estimates, according to FactSet. The blended earnings decrease for
S&P 500 firms combining those already reported earnings with
those yet to report is 2.2%, representing the second consecutive
quarterly decline in earnings.
Among firms that generate more
than 50% of their revenue in the U.S., earnings grew on average by
2.7%, indicating that international sales were a headwind for
S&P 500 companies in the first quarter.
Inflation under the radar
Regarding economic data,
weU+02019ll get the latest inflation readings next week, with the
April Consumer Price Index (CPI) on Wednesday and the Producer
Price Index (PPI) on Thursday. The CPI is expected to have risen
0.4% last month after an increase of 0.1% in
Year-over-year, prices were
likely up by 4.9%, the slowest pace in two years, decelerating
slightly from 5% in March. Core prices, excluding volatile food and
energy costs, are expected to have risen by 0.3% last month and by
The PPI will follow on Thursday,
tracking inflation from the perspective of manufacturers and
wholesalers. Producer prices are projected to have risen by 0.3%
last month, recovering from an unexpected 0.5% decrease in March.
Year-over-year, they are likely up by 2.4%, the slowest pace since
January 2021, decelerating from 2.7% in March.
Lastly, on Thursday, Bank of
England (BoE) policymakers will hold their latest meeting on
interest rates, following the U.S. Federal Reserve and European
Central Bank (ECB) that raised interest rates. As a result, BoE
policymakers are anticipated to increase the bank rate by 25 basis
points to 4.5%, marking the 12th consecutive rate hike since early
However, the UK is experiencing
its highest inflation in four decades, currently at an annual rate
of 10.1%, coupled with a stagnant economy. The latest GDP report,
due on Friday, is expected to show growth of just 0.1% in the first
quarter and stagnation on an annual basis.
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