The past week saw a significant increase in earnings reports from S&P 500 companies, with 159 companies reporting and another 175 scheduled to report. This diversity in company mix has boosted earnings expectations for the quarter after previous weeks were weighed down by bank and healthcare earnings. The rising pace of earnings has led to a more optimistic outlook for the earnings season.
The S&P 500 index rose by 2.7% for the week, bringing the year-to-date rebound to 7.4%. The 10-year Treasury yield slightly decreased, causing a small decline in the Bloomberg Aggregate Bond index. The Magnificent 7, including tech giants like Microsoft, Meta Platforms, Amazon, Apple, NVIDIA, Alphabet, and Tesla, all saw significant increases in value, with gains of almost 6%.
Notable companies reporting earnings last week include McDonald’s, Starbucks, Coca-Cola, Amazon.com, Eli Lilly, Apple, and Berkshire Hathaway. Blended earnings, which combine actual earnings with estimates from companies yet to report, have matched forecasts at the halfway point of the reporting season.
The communication services sector, led by Meta Platforms and Alphabet, has been a significant driver of the improved earnings in the first quarter. Other sectors like technology, consumer discretionary, and industrial have also contributed to boosting earnings estimates. However, the healthcare sector faced challenges due to the accounting treatment of in-process research and development from acquisitions, but better-than-expected earnings from some companies helped improve the overall healthcare sector’s earnings growth rate.
Nominal GDP growth is closely tied to sales growth, which saw an improvement last week and surpassed expectations going into the earnings season. Although the blended earnings performance has fallen short of expectations, the overall picture still shows growth in both earnings and sales. The recent GDP report showed healthy private demand in the domestic economy but also highlighted concerns about rising inflation, affecting the likelihood of future rate cuts by the Federal Reserve.
The economic growth story remains intact despite concerns about rising inflation, with some uncertainty around the timing of potential rate cuts by the Federal Reserve. Promising earnings reports from tech companies like Microsoft and Alphabet have bolstered confidence in the future of artificial intelligence technology. The upcoming busy week of earnings reports will include key players like Apple and Amazon.com, while the Federal Reserve’s meeting and comments from Chair Powell will be closely watched for insights into rate cut timing and future economic conditions. Warren Buffett’s annual meeting at Berkshire Hathaway will also provide valuable commentary on the current market and financial landscape.