Markets extended their winning streak to three weeks, with the S&P 500 and Nasdaq Composite seeing nominal gains on Friday. The S&P 500 added 1.8% for the week, while the Nasdaq gained just over 1%. With 92% of the S&P 500 having reported, earnings for the first quarter are on track to increase by 5.4%, exceeding expectations that had previously been at 3.4%. This would mark the highest year-over-year growth since the second quarter of 2022. The twelve-month forward-looking P/E ratio for the S&P 500 stands at 20.4, above the five and ten-year averages.
The increase in earnings has been driving market growth, with the S&P 500 up over 3.5% so far in May, and the Nasdaq Composite gaining nearly 4.5%. The sectors showing the greatest earnings growth include Communications, Utilities, Consumer Discretionary, and Tech, with companies like Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia leading the way. However, the Healthcare sector has produced disappointing numbers, with earnings on pace to be down 25% on a year-over-year basis.
Forward-looking guidance from companies is also an important aspect of earnings season, with companies either offering full-year forecasts or guidance for the next quarter. About eighty companies have offered guidance for the second quarter, with fifty offering negative guidance and thirty offering positive guidance. This guidance becomes crucial as overall earnings in the second quarter are expected to increase by 9.3%. Companies that miss earnings forecasts tend to see their stock prices fall by 2.8% this quarter, while companies that outperform are seeing a 0.9% increase in share price.
Despite earnings season winding down, important companies like Home Depot, Cisco Systems, and Walmart are still reporting this week. Alongside earnings reports, key economic indicators such as the Producer Price Index (PPI) and Consumer Price Index (CPI) are expected to show month-over-month increases of 0.3%. Retail Sales are also expected to be up by 0.4%. Chairman Powell and other members of the Federal Reserve are scheduled to speak throughout the week. Market volatility is currently low, but this could change as the week progresses.
Overall, investors are encouraged to stick with their investing plan and long-term objectives as they navigate through a volatile market influenced by earnings reports and economic indicators. While the market may be quiet at the moment, events throughout the week such as the PPI report, CPI report, Retail Sales report, and Federal Reserve speeches could potentially impact market dynamics. It is important to stay informed and cautious in these uncertain times.
This commentary, provided by tastytrade, Inc., is for educational purposes only and should not be considered as trading or investment advice. It is not a recommendation for any specific investment product or strategy.
