Last week, equity markets saw solid gains with the S&P 500 closing higher by 0.5% and the Nasdaq Composite gaining 1.5%. These gains were driven by positive earnings reports and a weaker than expected jobs report for April, sparking hope for a potential rate cut later in the year. Despite the weaker employment report, the likelihood of a rate cut in June is less than 10%, with the most probable timeframe for a cut remaining in September, with a 70% chance according to the CME.
In addition to the employment report, there were positive developments with inflation as oil prices experienced a steady decline since April. Metal prices and bond prices also saw decreases, with the yield on the benchmark 10-year note dropping to 4.47% from a recent high of 4.74%. Earnings season is ongoing, with 80% of the S&P 500 having reported a blended growth rate of 5% for Q1. Sectors leading in earnings include Communication Services, Utilities, Consumer Discretionary, and Technology, bringing down the 12-month forward-looking P/E ratio in the S&P to 19.9.
While earnings have been positive, there is concern regarding revenue growth as the blended revenue growth rate is currently at 4.1%. This suggests that the increase in earnings could be due to cost-cutting efforts such as layoffs, leading to a potential slowdown in earnings growth if revenues do not increase. The annual Berkshire Hathaway shareholder meeting touched on Warren Buffett selling a portion of Apple stock despite it making up 40% of Berkshire’s invested assets, as well as discussing losses in other investments.
Looking ahead, the economic calendar is quieter this week with Fed members speaking on four out of five days. Earnings continue with a focus on Disney reporting, and the lack of big names may lead to a smaller expected move in the S&P 500. However, investors should remain cautious as slow markets have the potential to surprise, and sticking to long-term investing objectives is advised.
