Rally into Earnings Season – Monday Morning Market Memo – April 17, 2023

The major stock market averages all posted gains last week. The Dow Jones Industrial Average, notched its fourth consecutive winning week, rising 1.2% to 33,886. The NASDAQ Composite edged up .3% to 12,123 and the Standard & Poor’s 500 Index added .8% to 4,138 – with those indices having now logged gains in four out of the past five weeks. A primary factor driving gains in the overall market last week was some cooling inflation data.

The U.S. Bureau of Labor Statistics reported the Consumer Price Index rose .1% last month, while the Producer Price Index declined .5%. Both numbers were less inflationary than financial markets were anticipating. This continues the recent trend of easing inflation and the stock market reacted positively, with reinforced belief the Federal Reserve is nearly done hiking interest rates. According to the CME FedWatch Tool, the probability for a ¼ point rate hike at next month’s meeting is 88%, with expectations for interest rates cuts later this year.

Earnings Season kicked off last week with several major banks reporting results. JPMorgan Chase, Citigroup, and Wells Fargoall reported better-than-expected earnings and revenues. Looking at the individual stock performances, JPMorgan led the way with a 7.5% price advance. Overall, for this earnings season, the bar is set low, as the economy is dealing with inflation and rising interest rates.

According to FactSet: For the first quarter of 2023, earnings for companies in the S&P 500 are expected to decline 6.5 percent; if that is the actual decline for the quarter, it would be the largest earnings decline reported by the index since the second quarter of 2020. The Bull’s (optimistic on the market) are hoping these expectations will be easy to beat.

After getting off to a positive start with some of the bank reports last week, earnings seasonbegins to ramp up this week. Companies scheduled to report include AT&T, Bank of America, Goldman Sachs, Intuitive Surgical, Procter & Gamble, Johnson & Johnson, International Business Machines, Netflix, and Tesla. As is often the case, forward guidance for upcoming quarters will be extremely important. Investors are eager for insight on how profits may hold up, into what looks like a slowing economy ahead of us.

As always, don’t hesitate to contact us with any questions or if you would like to set up a meeting.

All the best – Southport Station Financial Management, LLC