(Bloomberg) — Rising shares of tech giants have boosted the broader stock market, with Wall Street investors viewing the group's big profits as a major test for rising stocks.
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Tesla Inc. soared late in the day as the electric car giant announced it would accelerate the launch of more affordable models and Chief Executive Elon Musk struck an upbeat note. The stock ended a seven-day slide that had pushed it to “oversold” levels and rose on Tuesday along with the rest of the Magnificent Seven. Texas Instruments Inc. gave a bullish earnings forecast, which bodes well for the chip industry.
Tesla stock soars on results that are 'not as bad as feared': Street Wrap
After hitting record highs several times this year, stocks lost momentum in the past few weeks as the Federal Reserve signaled it would keep interest rates steady for longer. Citigroup strategists say the drop has removed the market bubble and made stocks more attractive as investors focus on earnings.
“We would view the recent pullback as a buying opportunity,” said Mihir Tirodkar and Beata Manthai of Citi. “The bullish positioning has reversed and become more neutral, especially in the US. Investor attention could refocus on solid underlying fundamentals this earnings season.”
The S&P 500 index posted its highest consecutive rate of increase in the past two months. Nvidia, a symbol of the artificial intelligence boom, led the surge among chipmakers. United Parcel Service, a barometer of the economy, reported better-than-expected profits. Goldman Sachs Group Inc. closed at an all-time high.
Robust sales of $69 billion in two-year notes gave U.S. Treasuries a brief boost, but they quickly returned to pre-auction levels, leaving 10-year Treasury yields little changed.
Morgan Stanley's Mike Wilson said the hurdles to profitability are high for U.S. companies, especially mega-technology companies that face tough comparisons with last year's growth rates.
But what will be more interesting to him is how the stock will react to the results.
Stocks extended their rebound after a selloff that saw the S&P 500 drop more than 5% from April through Friday.
The most important aspect of market setup heading into this week's earnings is an “oversold” situation, according to Dan Wantrowski of Janney Montgomery Scott.
“So a strong earnings performance over the next few days would effectively give the stock momentum for a larger counter-trend rally than we've seen to date,” he said.
Keith Lerner of Turist Advisory Services said the downside from current levels would be limited to between 2% and 5%, based on median and average declines. This is said to be comparable to the level of the S&P 500, which has strong technical support.
“Pullbacks are the price of admission to the market,” he noted. “The weight of evidence in our study suggests that market risk/reward has improved after recent setbacks. We see the recent decline as an opportunity for underweight investors.”
Bank of America's corporate customers ramped up share buybacks ahead of the busy quarterly earnings season.
Quantitative strategists led by Jill Carey Hall wrote in a note to clients on Tuesday that share buybacks accelerated in the five days ending April 19, marking the seventh consecutive week above typical seasonal levels. Ta.
In addition to Tesla, Microsoft, Metaplatforms, and Alphabet are also scheduled to report earnings this week. And the stakes are high.
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Profits for the Magnificent Seven, which includes Apple Inc., Amazon.com Inc. and Nvidia Inc., are expected to rise about 40% in the first quarter from a year ago, according to data from Bloomberg Intelligence.
The group of high-tech mega-cap stocks is extremely important to the S&P 500 because they make up the most weight in the index. Valuations are sky high after this year's rise. Even after this decline, the Magnificent Seven still trades at a combined forward P/E of 31 times, according to data compiled by Bloomberg.
According to Seema Shah, Principal Asset Management, the group is poised to continue its strong performance.
“Ultimately, the Magnificent Seven's strong balance sheet characteristics and solid competitive market position mean that its valuation is susceptible to significant corrections, even though it has been compared to the tech bubble of the 2000s.” “It suggests that the gender is low,” she pointed out.
And despite all macroeconomic concerns, tech balance sheets may protect the sector from rising interest rates, according to BI Strategists led by Gina Martin Adams.
“Tech stocks have above average and median duration compared to other sectors of the market, but this group also has relatively little debt and much better interest rate coverage compared to other sectors in the index. ratio,” they pointed out.
“While Big Tech companies are driving the S&P 500's profits this quarter, the other 495 companies in the index need to come into their own in the second quarter,” said Nicholas Colas of Datatrek Research. Deaf,” he said. “The market clearly believes this will happen, which is why large-cap stocks have held up pretty well despite rising interest rates and geopolitical risks.”
Scott Rabner, a tactical expert at Goldman Sachs Group, warns to brace for further declines in the stock market.
“My answer is no,” LaVerner said in response to a barrage of questions from clients about whether last week's stock market decline meant a sufficient reduction in equity exposure. He noted that Goldman clients are reducing their exposure to rising stock prices.
Goldman's trading desk, a commodity trading advisor (CTA) that surfs asset price momentum through long and short bets in the futures market, is modeled to sell stocks within the next week, no matter which direction the market goes. It is estimated that this has been done.
According to Fundstrat's Mark Newton, a rebound in stocks doesn't mean they're in the lows, but rather they look like they're getting closer to the lows, and the range appears to have bottomed out.
“The technology industry should return to good support and stabilize/recover post-earnings,” he said. “Value is temporarily leading growth, but this should prove to be temporary.”
Company highlights:
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Visa Inc. reported a quarterly profit that beat Wall Street expectations as U.S. credit card spending increased.
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Mattel reported a smaller-than-expected first-quarter loss, benefiting from rapid sales of its Hot Wheels miniature cars and cost reductions.
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Apple Inc.'s iPhone sales in China fell 19% in the March quarter, according to data from an independent research firm, marking the company's worst performance in the country since the coronavirus outbreak around 2020. .
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Spotify Technology SA reported it turned profitable in the first quarter as the audio streaming giant added subscribers and added new features.
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PepsiCo posted better-than-expected sales growth thanks to strong demand in its international divisions, despite lower volumes in North America.
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Halliburton Corp., the world's largest hydraulic fracturing operator, said its shale business is shrinking and is unlikely to recover this year, despite saying it had the best first quarter in more than a decade. recorded a profit.
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General Motors said strong truck sales in the U.S. prompted the company to raise its 2024 outlook by $500 million, and it expects profits to improve this year after a strong first quarter.
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General Electric raised its full-year profit forecast for its aerospace business on the back of increased revenue from commercial aircraft engines and services.
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JetBlue Airways expects lower-than-expected revenue this quarter due to excess flying capacity in key Latin American markets
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Philip Morris International raised its full-year outlook due to strong sales of heated tobacco and nicotine pouch products.
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Lockheed Martin Corp.'s first-quarter operating profit exceeded expectations as the company delivered more fighter jets and missile systems.
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Kering SA has warned that the crisis at Gucci, its biggest brand, is deepening and that profits will fall sharply in the first half of this year.
The main developments in the market are:
stock
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As of 4 p.m. New York time, the S&P 500 was up 1.2%.
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Nasdaq 100 rose 1.5%
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The Dow Jones Industrial Average rose 0.7%.
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MSCI World Index rose 1.2%
currency
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The Bloomberg Dollar Spot Index fell 0.4%.
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The euro rose 0.4% to $1.0702.
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The British pound rose 0.8% to $1.2449.
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The Japanese yen remained almost unchanged at 154.82 yen to the dollar.
cryptocurrency
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Bitcoin remains little changed at $66,486.04
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Ether rose 0.9% to $3,218.9
bond
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The 10-year Treasury yield fell 1 basis point to 4.60%.
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Germany's 10-year bond yield rose 2 basis points to 2.50%.
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The UK 10-year bond yield rose 4 basis points to 4.24%.
merchandise
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West Texas Intermediate crude rose 1.7% to $83.32 per barrel.
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Spot gold fell 0.2% to $2,322.91 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Sagarika Jaisinghani and Jessica Menton.
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