HomeBusinessWhat you need to know this week

What you need to know this week

Stocks fell last week as fears of persistent inflation could keep the Federal Reserve from cutting interest rates that have been gripping markets.

This week, the Nasdaq (^IXIC) fell nearly 0.6%, while the benchmark S&P 500 (^GSPC) fell more than 1.6%. The Dow Jones Industrial Average (^DJI) fell nearly 2.5%, driven by a slump in bank stocks on Friday as quarterly earnings reports failed to impress investors.

More updates on the state of corporate America will greet investors in the coming week. Results from Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS) rounded out the gains for major banks, while reports from United Airlines (UAL) and Netflix (NFLX) also highlighted the week.

In economic news, an update on March retail sales is scheduled for Monday, in what is expected to be an otherwise quiet week for economic data.

Hopes for an interest rate cut are fading

Last week, we noted that continued stronger-than-expected labor market data led more economists to wonder whether the Federal Reserve will cut rates in June. After another week of inflation data showing that price increases are not falling as quickly as many had hoped, many economists now see the Fed keeping rates steady until at least the fall.

The economic teams at Bank of America and Deutsche Bank, which had previously seen easing starting as early as early summer, now believe the Fed will make its first cut in December, meaning just one total cut for 2024.

“We no longer think policymakers will gain the confidence they need to start cutting spending in June,” Bank of America economist Michael Gapen wrote in a research note on Thursday. “We expect inflation to remain relatively firm in the near term. We forecast 0.25% m/m for the core PCE in March and April. This will make a reduction as early as June or September unlikely if there are no clear signs of a deterioration of the labor market.”

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The consensus is now pricing in two rate cuts this year, according to Bloomberg data. And Deutsche Bank Chief U.S. Economist Matthew Luzzetti noted that even this more tempered outlook may not materialize in 2024.

“Further disappointing inflation data or an election outcome that delivers fiscal stimulus and/or policies that could push up inflation (for example, trade or immigration policies) would argue for no interest rate cuts this year and in 2025,” Luzzetti wrote.

Consumer Report Card

With consensus that the Fed will keep rates higher for longer, economists will continue to watch closely for signs that the resilience of the US consumer is waning.

A new reading of that trend will greet investors on Monday with the March retail sales report. Economists expect retail sales to rise 0.4% in March from the previous month. This would extend February’s recovery after retail sales fell 1.1% in January.

“We don’t think consumer spending is about to slow meaningfully, especially as wage growth remains solid,” Wells Fargo’s economics team wrote in a note to clients. “Real-time data on credit card spending shows that consumer spending in March remained above its pre-pandemic trend.”

Bank profits show ‘risk’ indication

The first earnings reports from some of America’s largest financial institutions made little impression on investors. JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) all reported declining net interest income during their quarterly reports.

JPMorgan maintained its 2024 net interest income expectations of $90 billion, but analysts expected expectations to rise by $2-$3 billion, per CNBC.

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“Markets have priced in a greater likelihood that the Goldilocks scenario will play out this year, introducing more downside risks to ‘good but not good enough’ news,” Citi U.S. equity strategist Scott Chronert wrote in a letter to his customers. “Although it is still very early, the banks’ first batch of first-quarter reports highlights the risk that expectations will fall short of lofty implied growth expectations, even as the overall fundamental picture remains healthy.”

More banks, including Goldman Sachs, Bank of America and Morgan Stanley, are expected to report earnings early next week as investors continue to monitor the impact of higher interest rates on the financial sector.

It’s all about the question

Entering the first full week of Q1 quarterly updates, Wall Street strategists have their eyes on how specifically companies are driving earnings growth.

Over the past year, many companies have used layoffs and other tactics to keep margin growth intact while demand lags. Strategists expect that story to change this quarter, allowing the market rally to continue and earnings growth to support recent signs of an accelerating US economy.

“You’re at a point in the cycle where you really need to start seeing revenue growth pick up, and if you don’t, that’s going to be a bigger problem,” Charles Schwab senior investment strategist Kevin Gordon told Yahoo Finance. . “Companies that aggressively cut labor costs last year through layoffs, you can only do that for a limited time. Ultimately, you have to see actual demand come back into play.”

According to FactSet data, the S&P 500’s first-quarter revenue is expected to grow 3.4%, below the 10-year average of 5.1%.

Given the recent market slump on fears that inflation’s downward trajectory may have stalled and that the Fed could cut rates less than expected, how this earnings season plays out will become increasingly ‘critical’ for the market recovery, said Wei Li, BlackRock’s chief investment strategist.

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“Earnings have come to the rescue as markets have risen well over the past year despite aggressive repricing,” Li told Yahoo Finance. “So we’ll see if earnings will continue to survive the aggressive repricing, even as the bar for earnings continues to rise as well.”

FILE PHOTO: The Netflix logo is shown on one of their Hollywood buildings in Los Angeles, California, US, July 12, 2023. REUTERS/Mike Blake/File Photo

The Netflix logo is shown on one of the Hollywood buildings in Los Angeles, July 12, 2023. (Mike Blake/REUTERS/File Photo) (Reuters/Reuters)

Monday

Economic data: Empire Manufacturing, April (-5 expected, -20.9 prior); Retail sales, month-on-month, March (+0.4% expected, +0.6% prior); Retail sales excluding cars and gasoline monthly, March (+0.3% expected, +0.3% prior); NAHB housing market index, April (51 expected, 51 earlier)

Income: Charles Schwab (SCHW), Goldman Sachs (GS)

Tuesday:

Economic data: Construction permits month-on-month, March (-0.3% expected, 2.4% earlier); Housing starts month-on-month in March (-2.7% expected, +10.7% earlier); Industrial production, month-on-month, March (+0.4% expected, +0.1% earlier)

Income: Bank of America (BAC), BNY Mellon (BK), Interactive Brokers Group (IBKR), JB Hunt (JBHT), Johnson & Johnson (JNJ), Morgan Stanley (MS), PNC (PNC), United Airlines (UAL) , United Health Group (UNH)

Wednesday

Economic data: MBA mortgage applications, week ending April 12 (+0.1% earlier)

Income: Alcoa (AA), ASML (ASML), Abbott Labs (ABT), Citizens Financial Group (CFG), CSX (CSX), Discover Financial Services (DFS), Las Vegas Sands (LVS), Synovus (SNV), Travelers ( TRV)

Thursday

Economic data: First unemployment claims, week ending April 13 (previously 211,000); Philadelphia Fed Business Outlook, April (0.0 expected, 3.2 earlier); Leading Index, March (-0.1% expected, +0.1% prior); Existing home sales, month-on-month, March (-5.1% expected, 9.5% earlier)

Income: Netflix (NFLX), Alaska Airlines (ALK), Ally Financial (ALLY), Blackstone (BX), DR Horton (DHI), KeyBank (KEY), PPG (PPG), Truist (TFC), TSMC (TSM), Union Pacific (UNP), Western Alliance (WAL), WD-40 (WDFC)

Friday

Economic data: No significant economic data.

Income: American Express (AXP), Procter & Gamble (PG)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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