How Feds Likely Rate Hold Will Impact Markets

The past week brought investors some relief as selling pressures eased and widely the market was able to catch a bid, leading to all three major indices finishing the week higher. Additionally, nine out of the eleven S&P 500 sectors were positive on the week. Despite a disappointing Q1 GDP report and hotter than expected PCE print, the markets were able to find their footing and trade higher due to the majority of companies that reported last week delivering strong Q1 earnings results. Now, after last week’s bounce, 71% of S&P 500 stocks are trading above their 200-Day moving average, signaling that the majority of the market is still in a longer-term uptrend. However, only 45% are trading above their 50-Day moving average so the market is far from overbought at this point after the recent pullback. With that said, the recent pullback in the S&P 500 only reached a decline of 5.91%. Although this is not our opinion of what’s to come, over the past forty years the average intra-year drawdown in the S&P 500 has been roughly 14%. So, with that said, the volatility may not yet be shaken out of the market. Over the next month the S&P could easily trade down and test its 100-Day moving average or even levels near 4800.

On the heels of last week’s economic data & earnings, this week is dialed up to deliver another batch of crucial market moving information. First and foremost is this week’s FOMC meeting scheduled for Wednesday. Although no change in monetary policy is expected, investors will be locked into Powell’s messaging during the press conference. On the macro front, this week features two significant reports which will shed light on the current state of the labor market. This will come in the form of Tuesday’s JOLTS report and Friday’s Jobs report to close out the week. On top of that, there are some major Q1 earnings reports due this week which have the ability to drive the market’s direction. A few of the companies set to report their latest earnings are Apple, Inc., Amazon.com, Inc., & Eli Lilly & Co.

Job Openings and Labor Turnover Summary (JOLTS) – The Bureau of Labor Statistics’ March JOLTS report will be released on Wednesday morning shortly after the market opens. The JOLTS report tracks the number of job openings & various metrics on the number of workers who left the workplace during the respective period.
- March’s job openings are expected to come in at 8.72 million, a month-over-month decrease of about 0.4%. If this number comes in around the expectation, it will represent a 9.4% decrease over the past year.
U.S. Jobs Report – On Friday morning the Bureau of Labor Statistic’s monthly jobs report will be released. This report consists of three major components, Nonfarm Payrolls, Unemployment Rate, & Hourly Wages. Each of these three reports are important pieces of data which help to understand the labor market and health of the broader economy.
- U.S. Nonfarm Payrolls quantify the number of employed workers from the U.S. labor force, excluding a few specific occupations. The key metric generally watched by investors is the month-to-month nominal change in employment. Nonfarm Payrolls are expected to report an increase of 210K jobs for the month of April. In March, the U.S. added 303K jobs well-above the expectation of 200K.
- The U.S. Unemployment Rate aims to measure the percentage of workers in the U.S. labor force who are currently unemployed but are able to work and are seeking employment. Expectations are that the U.S. Unemployment Rate in April was 3.8%. This would be on par with March’s number of 3.8%.
- The Hourly Wages Report seeks to measure the average hourly and weekly wages that private nonfarm employees earn in a given month. This report serves as an indicator on the quality of the job market as well as the financial health of the average worker. Hourly Wages in the month of April are expected to have increased MoM by 0.3% to $34.79. This would mark a YoY increase of 4.04%.

Federal Reserve Watch

This past week was relatively quiet regarding any messaging from Fed members as they were in their pre-meeting ‘quiet period’, which restricts them from public speaking events. In light of last week’s macroeconomic news showing that U.S. GDP growth slowed significantly in Q1 coupled with the March PCE report which validated concerns that inflation is remaining stubbornly high, expect these to be areas of focus at Wednesday’s FOMC meeting. The signs of slowing growth and inflation continuing to come in higher than expected could eventually serve as a catalyst to disrupt the ‘Soft-Landing’ narrative should these trends continue. Investors will be keyed into Chair Powell’s post-meeting press conference to see what insights he may share as well as if he will address any concerns related to the macroeconomic environment. Chair Powell and other FOMC members have remained firm that they are resolute in their mission to bring inflation down to their target range of 2%. The committee has seemingly ruled out any further rate hikes in this cycle as they have communicated that the current policy level is sufficiently restrictive. However, they are willing to leave policy rates at current levels until they have seen sufficient evidence of inflation continuing to trend downward. Up to this point, we have yet to see the evidence they are looking for.

It is a foregone conclusion that the Fed will leave rates unchanged at this week’s meeting, so we are looking toward future meetings to see what Fed Funds Futures markets are predicting. Currently, Fed Funds Futures are pricing in only one policy rate cut through the end of the year. The CME’s FedWatch tool indicates that the soonest that this rate cut could occur is at the September meeting. Presently, odds of a cut at the September meeting stand at 57.4%, which is down from 65.1% a week prior. Investors seem more confident that this cut will not occur until either November or December where the odds of a cut stand at 64.3% & 80.8% respectively. These probabilities from Fed Funds Futures data reflect recent market sentiment shifts in the number of rates cuts that investors are expecting this year. Coming into the year, the market was expecting six rate cuts and now due to recent developments, the expectation has been pared back to one.

This Week’s Notable Earnings

With a little under half of the S&P 500 companies having reported earnings thus far, Q1 Earnings season has unfolded quite nicely. To date, 77% of the S&P 500 companies that have reported have posted an EPS beat. This week we have another major lineup of significant companies set to report Q1 earnings. This week investors will hear from two more ‘Magnificent 7’ members in Apple, Inc., & Amazon.com, Inc. There are two other technology companies, specifically from the semiconductor sector, in Advanced Micro Devices, Inc. & QUALCOMM Inc. which are set to post their Q1 results. Additionally, two top Pharmaceutical-makers, Eli Lilly & Co. & Novo Nordisk will report their Q1 earnings this week.

This week two of the ‘Mag 7’ companies will report their Q1 earnings. On Tuesday after the market closes, Amazon.com, Inc., will report their results. AMZN is expected to report YoY Q1 EPS growth of 167.4%. Following them, on Thursday once the market closes, Apple Inc. will report their Q1 earnings. AAPL is forecast to report Q1 EPS that is slightly lower than Q1 ’23. Due to stagnating growth and multiple headwinds, AAPL is in need of a strong result and message from management about where the company’s next growth engine will be.
- AMZN earnings are expected to come in at $0.83 EPS.
- AAPL earnings are expected to come in at $1.51 EPS.

Next, two major players in the semiconductor industry are on deck to report their earnings this week. Up first is Advanced Micro Devices, Inc. as they will post their Q1 earnings after the bell on Tuesday. AMD is expected to report a marginal YoY increase in their quarterly earnings. The following day, QUALCOMM Inc. will reveal their latest quarterly earnings. Analyst’s expectations are that QCOM will increase Q1 earnings by 7.9% when compared to last year.
- AMD earnings are expected to come in at $0.61 EPS.
- QCOM earnings are expected to come in at $2.32 EPS.

Additionally, this week, two significant companies in the healthcare/ pharmaceutical sector will report their Q1 results. Prior to the market open on Tuesday, Eli Lilly & Co. will report their earnings. Then on Thursday before the opening bell, Novo Nordisk will post their Q1 numbers. Each of these companies are at the epicenter of the GLP-1 ‘weight-loss drug’ revolution and investors have extremely high expectations about what these drugs will do for their future earnings. LLY & NVO are expected to increase their YoY Q1 earnings by 52.5% & 16.7% respectively.
- LLY earnings are expected to come in at $2.47 EPS.
- NVO earnings are expected to come in at $5.12 EPS.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,