Investors will have a variety of potentially market-moving events to contemplate this week, with corporate earnings season ramping up and a Federal Reserve monetary policy decision on deck.
The Federal Open Market Committee (FOMC) will meet for its April meeting on Tuesday and Wednesday, with a monetary policy decision and press conference from Federal Reserve Chair Jerome Powell slated for Wednesday afternoon. With the Fed having already signaled that benchmark interest rates would remain on hold through at least 2023, market participants are expecting virtually no major changes to policy to be announced at the conclusion of this April FOMC meeting.
Powell himself has suggested that the Fed’s first action once it begins shifting its policy posturing, will be to adjust the central bank’s crisis-era asset purchase program, which is currently taking place at a rate of $120 billion per month. In past press conferences and public remarks, however, Fed officials have signaled they were still not inclined to even begin thinking about tapering these quantitative easing policies, given the lingering uncertainty around the pandemic.
But even in the month since the last Federal Reserve meeting, data on the economic recovery has firmed considerably, building a case for easing support. Initial jobless claims plunged to a pandemic-era low last week, and retail sales jumped nearly 10% to rise by the most since May 2020. IHS Markit’s manufacturing and service sector purchasing managers’ indices rose to the highest level in survey history, as pent-up consumer demand prompted a quick pick-up in both the goods-producing and service-providing areas of the economy.
“At the conclusion of the April FOMC meeting, we expect Chair Powell and the FOMC to give a more positive view of the economy but reiterate that the economy needs to make further progress before signaling any policy change and risks remain from the virus,” Bank of America chief economist Michelle Meyer wrote in a note.
“The policy statement and the press conference are likely to emphasize that while the Fed is encouraged by the recent data, the recent acceleration in inflation should prove temporary and the labor market recovery is far from complete,” she added. “On asset purchases, we will look to see if Powell reiterates that it will be ‘some time’ before achieving ‘substantial further progress’ or changes the description of the path. We believe ‘some time’ is still appropriate, but there is a risk that he shifts.”
Others have also suggested that the rapidly strengthening economic backdrop could prompt a similarly faster than currently telegraphed shift in Federal Reserve policy. This could come both as a response to an economy no longer in need of such immense support, and as a means of staving off a potential surge in inflation as demand outpaces supply during the recovery.
“With the economy opening up more and more each day, we are anticipating a series of 1 million-plus monthly payroll gains that could be enough for the Federal Reserve to call ‘substantial further progress’ and start the tapering process before the end of the year,” ING chief international economist James Knightley wrote in a note Thursday.
Others, however, expect monetary policymakers to continue to demur on talk of tapering for the near-term.
“We don’t expect any substantive new signal yet on tapering—or tightening—even as the tone on the economy is more positive than in March,” Jim O’Sullivan, chief U.S. macro strategist, wrote in a note. “We expect the signaling to evolve over time as the recovery proceeds, and we just changed out forecast for the start of tapering to March 2022 from September 2022, but we expect officials will be reluctant to say anything that could be construed as a tapering countdown signal until much later this year.”
Big Tech earnings
The bulk of the mega-cap technology companies will report first-quarter earnings results this week. The companies – including Amazon, Alphabet, Facebook and Google – are up against heightened expectations, with tech stocks having largely benefited from stay-at-home trends during the pandemic, and as earlier quarterly reports set a high bar.
Companies comprising just over one-quarter of the S&P 500’s market capitalization had reported first-quarter results as of Friday morning, according to an analysis from Credit Suisse’s Jonathan Golub. Eighty-three percent of companies reporting results had posted earnings that topped estimates, with the beats coming in an aggregate of 23.1% above expectations.
That said, the reaction to last week’s report from Netflix (NFLX) underscored the dangers of high expectations. Netflix’s disappointing first-quarter net subscriber additions and current quarter guidance served, to some, as a harbinger of the difficult stretch ahead for tech companies: Most will have especially tough year-over-year comparisons as they lap the results they posted last year that had been aided by stay-at-home trends.
“Amazon is our favorite FANG name into 1Q earnings. We expect upside to our 1Q revenue estimate of $105B on continued strong e-commerce trends (also helped by two rounds of stimulus), with investor expectations for $106B+ based on our conversations,” JPMorgan Chase analyst Doug Anmuth wrote in a note. “In terms of positioning, we believe Amazon is less owned than Google, and sentiment more in-check than in recent quarters given tough comps ahead, which Netflix results may have reinforced.”
Amazon is expected to post first-quarter revenue that grew 39% over last year, according to Bloomberg consensus data, accelerating from its 26% growth rate from the same quarter of 2020. And the e-commerce giant suggested in February that it would incur virus-related costs of about $2 billion in the first quarter, after incurring more than $5 billion in costs since the start of the pandemic through the end of last year.
“We think AMZN’s difficult comps owing to the acceleration of eCommerce during the pandemic are well understood, but nevertheless will remain the top focus for the print,” BMO Capital Markets analyst Daniel Salmon wrote in a note. “With that said, we are more intrigued by the potential change in margin profile as some COVID related expenses could fade as vaccinations rise and restrictions ease. This comes after 2019 when a similar level of investment was put into one-day shipping.”
The advertising-driven companies Facebook (FB) and Alphabet (GOOGL), the parent company of Google, are also reporting against high estimates, given that analysts have already priced in a rebound in advertising revenues during the economic recovery. Plus, smaller social media company Snap (SNAP) posted first-quarter sales growth of 66% and another 22% surge in user growth last week, underscoring the staying power of online media usage on some platforms even as parts of the economy start to open.
Facebook’s expected first-quarter revenue growth of 34% would be its fastest since early 2018, and Alphabet is expected to report revenue growth of 26%, or its fastest pace since early 2013.
“We think GOOG faces a higher bar this quarter than the past few as expectations for a strong search and brand advertising recovery are anticipated,” Salmon wrote. “But our estimates move slightly higher too, as key categories like travel continue to return, and YouTube’s strength in CTV [connected TV] shines through.”
Finally, Apple (AAPL) is set to report fiscal second-quarter results after a record-setting holiday quarter at the end of last year, with the iPhone 12 upgrade cycle helping fuel results. The boost from these new devices likely extended into the start of the year, though ongoing chip shortages could put a damper on results later in the year, some pundits suggested.
“We are expecting the iPhone 12 super cycle theme to be front and center on Wednesday after the bell when Cupertino delivers another strong upside March quarter based on our analysis.,” said Dan Ives. “That said, all eyes will be on June guidance with the Street worried that a moderation in growth and lingering chip shortage will spoil the super cycle party in Cupertino, which we strongly disagree with. We also are expecting another strong services quarter which is slated to exceed $65 billion of revenues in FY21 and remains key to the re-rating in Apple’s stock over the past year.”
Tuesday: UPS (UPS), Centene (CNC), Sherwin-Williams (SHW), General Electric (GE), 3M (MMM), Hasbro (HAS), Eli Lilly (LLY), Raytheon Technologies (RTX), JetBlue (JBLU), Crocs (CROX) before market open; Mondelez (MDLZ), Capital One (COF), Alphabet (GOOGL), FireEye (FEYE), Texas Instruments (TXN), Visa (V), Advanced Micro Devices (AMD), Pinterest (PINS), Starbucks (SBUX), Microsoft (MSFT), Amgen (AMGN) after market close
Wednesday: Humana (HUM), CME Group (CME), Sirius XM Holdings (SIRI), Wingstop (WING), Boston Scientific (BSX), Six Flags Entertainment (SIX), Boeing (BA), Yum Brands (YUM), Moody’s Corp (MCO), Discovery (DISCA) before market open; Apple (AAPL), Facebook (FB), eBay (EBAY), Align Technology (ALGN), Ford (F), O’Reilly Automotive (ORLY), Qualcomm (QCOM), MGM Resorts (MGM), ServiceNow (NOW), Teladoc (TDOC), GrubHub (GRUB) after market close
Thursday: Caterpillar (CAT), Intercontinental Exchange (ICE), Bristol-Myers Squibb (BMY), Comcast (CMCSA), Merck (MRK), PG&E Corp (PCG), Bloomin’ Brands (BLMN), Molson Coors (TAP), Keurig Dr. Pepper (KDP), LendingTree (TREE), Overstock.com (OSTK), Altria Group (MO), Kraft-Heinz (KHC), McDonald’s (MCD), Mastercard (MA), Domino’s Pizza (DPZ), T Rowe Price Group (TROW), Royal Caribbean (RCL), S&P Global (SPGI), SolarWinds (SWI) before market open; Amazon (AMZN), Twitter (TWTR), SkyWorks Solutions (SWKS), Gilead Sciences (GILD) after market close
Monday: Durable goods orders, March preliminary (2.5% expected, -1.2% in February); Durable goods excluding transportation, March preliminary (1.6% expected, -0.9% in February); Non-defense capital goods orders excluding aircraft (1.5% expected, -0.9% in February) Non-defense capital goods shipments excluding aircraft (1.5% expected, -1.1% in February); Dallas Fed Manufacturing Activity Index, April (30.0 expected, 28.9 in March)
Tuesday: FHFA House Price Index, month-over-month, February (1.0% expected, 1.0% in January); S&P CoreLogic Case-Shiller 20-City Composite index, month-over-month, February (1.1% expected, 1.2% in January); S&P CoreLogic Case-Shiller 20-City Composite index, year-over-year, February (11.8% expected, 11.1% in January); Conference Board Consumer Confidence, April (112.0 expected, 109.7 in March); Richmond Fed Manufacturing Index, April (22 expected, 17 in March)
Wednesday: MBA Mortgage Applications, week ended April 23 (8.6% during prior week); Advance goods trade balance, March (-$87.5 billion expected, -$86.7 billion in February); Wholesale inventories, month-over-month, March preliminary (0.6% expected, 0.6% in February); Retail inventories, month-over-month, March (0.0% in February); FOMC monetary policy decision
Thursday: Initial jobless claims, week ended April 24 (550,000 expected, 547,000 during prior week); Continuing claims, week ended April 17 (3.674 million during prior week); GDP annualized quarter-over-quarter, Q1 advanced print (6.5% expected, 4.3% in Q4); Personal consumption, Q1 advanced print (10.5% expected, 2.3% in Q4); Core personal consumption expenditures, Q1 advanced print (2.4% expected, 1.3% in Q4); Pending home sales, month-over-month, March (4.5% expected, -10.6% in February)
Friday: Personal income, March (20.0% expected, -7.1% in February); personal spending, March (4.3% expected, -1.0% in February); Personal consumption expenditures deflator, month-over-month, March (0.5% expected, 0.2% in February); Personal consumption expenditures deflator, year-over-year, March (2.3% expected, 1.6% in February); MNI Chicago PMI, April (65.0 expected, 66.3 in March); University of Michigan consumer sentiment, April final (87.8 expected, 86.5 in March)
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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