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‘Magnificent Seven’ Roar Hours Away From Earnings: Markets Wrap

‘Magnificent Seven’ Roar Hours Away From Earnings: Markets Wrap
About 40% of companies in the S&P 500 report earnings this week, including more than half of the "Magnificent Seven." Stephanie Guild, Robinhood Financial head of investment strategy, talks about what to expect.

A rally in tech heavyweights lifted the broader stock market, with the group’s high-stakes earnings seen by Wall Street investors as a major test of the bull run in equities.

Every member of the “Magnificent Seven” cohort of megacaps rose on Tuesday, rebounding after a selloff that sent the market to its worst week in over a year. Tesla Inc., which reports its results after the close, halted a a seven-day losing streak. A decline in bond yields also buoyed trader sentiment ahead of a record $69 billion sale of two-year notes.

After notching several record highs in the first quarter, equities lost traction in April amid signals that the Federal Reserve is prepared to hold interest rates higher for longer. The slide has made the market more attractive as it removed market froth, with investors now focused on robust corporate earnings, according to Citigroup Inc. strategists.

“We would view the recent pullback as a buying opportunity,” Citi’s Mihir Tirodkar and Beata Manthey said. “Bullish positioning has unwound and now looks more neutral, particularly in the US. The current earnings season could re-focus investor attention on solid underlying fundamentals.”

The S&P 500 topped 5,060, while the tech-heavy Nasdaq 100 added 1.5%. Treasury 10-year yields declined two basis points to 4.59%. Economic data was mixed at best, with US business activity cooling down and a gauge of new home sales coming in hot.

Source: Bloomberg
Big tech roars before earnings

Besides Tesla, Microsoft Corp., Meta Platforms Inc. and Alphabet Inc. will also report earnings this week.

Profits for the “Magnificent Seven” group — which also includes Apple Inc., Amazon.com Inc. and Nvidia Corp. — are forecast to rise 38% in the first quarter from a year ago, according to Bloomberg Intelligence data.

To Seema Shah at Principal Asset Management, the group will likely be able to extend its positive performance.

“After all, the strong balance sheet characteristics and secure competitive market positions of the Magnificent Seven imply that a significant correction is unlikely, despite their valuations drawing comparisons to the 2000s tech bubble,” she noted.

And despite all the macroeconomic fears, tech balance sheets may shelter the sector from elevated rates, according to BI strategists led by Gina Martin Adams.

“While tech stocks have above-average and median duration relative to the rest of the market, the group also carries relatively little debt and maintains a far superior interest-rate coverage ratio to the rest of the index’s sectors,” they noted.

Source: Bloomberg Intelligence
Source: Bloomberg Intelligence

From a technical standpoint, the most-important aspect of the market set-up heading into this week’s earnings was its “oversold” condition, according to Dan Wantrobski at Janney Montgomery Scott.

“Thus, if earnings come in strong over the days ahead, stocks are effectively spring-loaded for a bigger counter-trend rally than we have seen thus far,” he said.

Based on the median and average pullbacks, downside from current levels would be limited to somewhere between 2% to 5%, which would also correspond to S&P 500 levels where there is strong technical price support for the market, said Keith Lerner at Truist Advisory Services.

“Pullbacks are the admission price to the market,” he noted. “The weight of the evidence in our work suggests the market’s risk/reward has improved following the recent setback. Therefore, we view the recent pullback as an opportunity for those investors who have excess cash or are underweight equities relative to their target allocations.”

Ahead of a busy period of corporate earnings results, Bank of America Corp.’s corporate clients stepped up purchases of their own stock last week, while institutional investors offloaded US shares.

Buybacks accelerated in the five-day period through April 19 — and are tracking above typical seasonal levels for the seventh consecutive week — quantitative strategists led by Jill Carey Hall wrote Tuesday in note to clients.

Source: Truist Advisory Services
Source: Truist Advisory Services

Brace for more declines in stock markets, warns Goldman Sachs Group Inc.’s tactical specialist Scott Rubner.

Answering a barrage of questions from clients on whether the pullback in stock markets meant enough equity exposure was reduced last week, Rubner said “my reply is no.” He noted that Goldman clients have been reducing exposure on any uptick in stocks.

Goldman’s trading desk estimates that commodity trading advisers, or CTAs that surf the momentum of asset prices through long and short bets in the futures market, are modeled to sell stocks over the next week, no matter which way markets go.

Corporate Highlights:

  • Apple Inc.’s iPhone sales in China fell 19% during the March quarter, according to data from an independent research firm that marked the gadget’s worst performance there since Covid struck around 2020.
  • United Parcel Service Inc. reported profit higher than analysts’ estimates as the courier’s headcount management and restructuring of its delivery routes began to bear fruit.
  • Spotify Technology SA reported it swung to a profit in the first quarter as the audio-streaming giant boosted subscribers and added new features.
  • PepsiCo Inc. posted stronger-than-expected sales growth thanks to robust demand in its international divisions, while volumes dropped in North America.
  • Halliburton Co., the world’s biggest provider of fracking work, posted its best earnings for a first quarter in a dozen years despite a shrinking business in the shale patch that it said isn’t likely to recover this year.
  • General Motors Co. expects better profit this year after a strong first quarter, as robust truck sales in the US led the automaker to raise 2024 guidance by $500 million.
  • General Electric Co. raised the full-year profit guidance for its aerospace business, driven by an increase in revenue from commercial aircraft engines and services.
  • JetBlue Airways Corp. forecast worse-than-expected sales this quarter, blaming excess flying capacity in the critical Latin America market
  • Philip Morris International Inc. raised its full-year outlook after strong sales of its heated tobacco and nicotine pouch products.
  • UnitedHealth Group Inc. found files containing private information on a vast number of Americans whose data may have been compromised in a February cyberattack that upended the US health system.
  • Lockheed Martin Corp.’s first-quarter operating income beat expectations as it delivered more fighter jets and missile systems.
  • RTX Corp.’s profit beat Wall Street estimates as the aerospace and defense giant works through the costly recall of its best-selling jet engine.
  • Kering SA warned that profit will plunge in the first half of the year after wealthy shoppers curbed spending on Gucci products.

Some of the main moves in markets:

Stocks

  • The S&P 500 rose 1% as of 12:03 p.m. New York time
  • The Nasdaq 100 rose 1.4%
  • The Dow Jones Industrial Average rose 0.5%
  • The Stoxx Europe 600 rose 1.1%
  • The MSCI World index rose 1.1%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.3%
  • The euro rose 0.4% to $1.0694
  • The British pound rose 0.7% to $1.2433
  • The Japanese yen was little changed at 154.81 per dollar

Cryptocurrencies

  • Bitcoin was little changed at $66,537.51
  • Ether rose 1.2% to $3,230.9

Bonds

  • The yield on 10-year Treasuries declined two basis points to 4.59%
  • Germany’s 10-year yield advanced two basis points to 2.50%
  • Britain’s 10-year yield advanced four basis points to 4.24%

Commodities

  • West Texas Intermediate crude rose 1.3% to $82.98 a barrel
  • Spot gold fell 0.2% to $2,322.50 an ounce

Gallery

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