Everything to Know about Macro and Markets
Stocks closed mixed on Friday, as the Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) clinched their fifth consecutive record high. At the same time, the S&P 500 (SPX) and the Dow Jones Industrial Average (DJIA) were slightly lower at the closing bell after a report showed consumer sentiment unexpectedly declined to its weakest level since November 2023. Still, all main indexes except the DJIA clocked in another winning week.
Lower Inflation vs. Less Dovish Fed
The technology sector’s gains led last week’s rally even as the Federal Reserve dialed back their interest-rate reduction expectations. The Fed is now projecting to have just one rate cut this year, down from the three that had been previously forecasted in March. Still, market participants were encouraged by the latest economic reports, including consumer and producer inflation metrics that continued to decline, suggesting that the Federal Reserve has the upper hand in its battle with sticky inflation.
In addition, stocks were propped up by positive surprises received from technology majors such as Apple (AAPL), Oracle (ORCL), and Broadcom (AVGO). However, disappointment with the less dovish-than-hoped Fed rate outlook weighed on most S&P 500 sectors, with only IT, Communication Services, and Real Estate ending the week in the green. All major market indexes have seen a significant degradation in market breadth over the past month as gains have been concentrated within large- and mega-cap tech.
Market Breadth Depends on Rate Outlook
As investors dialed back their rate-cut expectations, the small-cap index Russell 2000 fell, adding to its year-to-date underperformance versus the S&P 500. At the same time, according to Bank of America’s research, investors pulled $2.6 billion from value equity funds in the week through Wednesday, with a large part of the money flowing into growth stock funds.
Many analysts believe that the Federal Reserve’s policy outlook is leaning conservative. However, should the disinflation trend continue as reflected in the latest CPI and PPI reports – or if the labor market and wage gains cool more than currently anticipated – policymakers may turn more dovish. If economic reports in the next couple of months confirm the outlook of normalizing price pressures, the rate-cut expectations may be brought forward, thus opening the door for improved market conditions.
Stocks That Made the News
¤ NVIDIA (NVDA) continued its climb, as the AI leader was supported by retail inflows after its 10-to-1 split, as well as by positive news from its technology partners.
¤ Apple (AAPL) rose, briefly overtaking Microsoft (MSFT) as the world’s largest company, as the iPhone maker sparked renewed investor optimism after it revealed plans for generative AI incorporation into its products in partnership with OpenAI.
¤ Oracle (ORCL) helped support technology shares, rallying almost 10% for the week, after weaker-than-expected quarterly results were more than offset by partnership agreements with Alphabet, Microsoft, and OpenAI, alongside surging bookings and upbeat guidance. Management stated that revenues for the current fiscal year are expected to grow by double digits, fueled by strong demand for AI solutions.
¤ Broadcom (AVGO) saw its shares soar over 23% on the week after the chipmaker reported a better-than-expected fiscal second quarter and lifted its full-year revenue outlook on surging artificial intelligence demand. Broadcom also announced plans for a long-awaited stock split, similar to that of NVIDIA.
¤ Super Micro Computer (SMCI) rallied by more than 10% in the past week, riding the wave of AI optimism following Oracle’s and Broadcom’s upbeat guidance. In addition, the stock saw several analyst rating and price-target upward revisions, with some analysts forecasting a high double-digit upside for SMCI in the next 12 months.
¤ Adobe (ADBE) rallied more than 15% after it reported stronger-than-expected quarterly earnings and revenue and raised its guidance for fiscal 2024 on strong demand for its AI-powered document and creative software.
¤ PayPal (PYPL) was the worst performer among the large-cap tech cohort, as analysts offered conflicting opinions on the stock, with some sighting increased competition, specifically a competitive threat of Apple Pay service to PayPal’s Venmo platform.
Upcoming Earnings and Dividend Announcements
The Q1 2024 earnings season has ended, but some earnings releases are still scheduled for this week, mostly from firms whose fiscal year differs from the calendar year.
This week, investors will follow the reports scheduled to be published by Darden Restaurants (DRI), Lennar (LEN), Kroger Company (KR), Accenture (ACN), Jabil (JBL), and CarMax (KMX).
Ex-dividend dates are coming this week for Merck & Company (MRK), UnitedHealth (UNH), Iron Mountain (IRM), Lam Research (LRCX), Southwest Airlines (LUV), Best Buy Co (BBY), and other dividend-paying firms.
For more exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman, click here.
