Market Story Lines
Hello, I'm Eric Criscuolo, Market Strategist at the New York Stock Exchange, and this is Market Storylines. Every week we’re here to keep you up to date on the key trends and events driving global markets. We’re recording this on Thursday April 30th , the last day of the month. Now let’s dive in.
Last week was once again full of conflicting news on the Iran situation. The push and pull from the zig-zagging headlines, on top of the avalanche of earnings, kept the S&P in a tight 1.5% range and led to a modest gain overall. As Michael pointed out last week it was a consolidation of the rapid move higher over the prior 3 weeks. The standout was Tech. The NYSE 100 Index was up over 2% but the semiconductor index rose 11%, including a 5% gain on Friday which made it 18 straight days of gains for that index.
As we headed into this week, Iran-related news continued to swing this way and that, but the market brought its focus to two much different topics: the Fed meeting and mega cap tech earnings.
However, before those events, the WSJ threw an AI grenade at the market with an article that said OpenAI missed growth targets and the CFO was worried about the ability to pay its future compute obligations without significant revenue growth. That played up to the main bear thesis and answer to “what keeps you up at night” for the AI story, and unsurprisingly, put the entire AI complex under pressure, creating an interesting set-up for the giant tech earnings to come the next day.
As a lead-in to those earnings we also had the Fed’s rate decision. The potential for Jerome Powell to stay on as chair on a temporary basis after his term ends on May 15 likely ended when the Senate Banking Committee voted this week to advance Kevin Warsh’s nomination to a full Senate vote. We wouldn’t be fulfilling our market commentary mandate if we didn’t note that Senator Elizabeth Warren once again called Warsh Trump’s “sock puppet”, which I guess is better than Trump’s Dummy, and was “uniquely unfit” for the job.
As for the actual meeting, the Fed kept rates unchanged, surprising no one. There were really two key takeaways. The first was there’s more dissention in the committee. While everyone but Stephen Miran voted to maintain the rate, three voters: Hammack, Kashkari, and Logan, wanted to craft a more balanced statement and remove the easing bias in the language. Inflation is becoming more of a concern for the group. The market has priced in an 80% chance that the Fed remains on hold for the remainder of the year.
The second takeaway was that while Powell likely turns the chair over to Warsh on May 15, he will stay on as a Governor for an as-yet undetermined amount of time. His decision was based on his concern from the legal attacks on the Fed, and not from the “verbal criticism” lobbed his way by unnamed heads of state. He previously said he would stay at the Fed until the investigations into the institution were “well and truly over.” It looks like that threshold has not yet been reached even after the DOJ ended its investigation.
When Powell left the podium, it was time to pivot to those tech earnings. Overall the numbers continued to explode off the screen. Alphabet, Amazon, Meta and Microsoft easily beat estimates and posted stellar growth numbers in cloud and AI related metrics. They also collectively spent over $130 billion on capital expenditures….in this quarter alone… and are on track to hit $725 billion for the full year. Revenues are stratospheric but spending is other-worldly, and that is in part leading to a divergence between the optics of the results and the reaction of the stocks. Meta was down almost 10% today, Microsoft off 5%. These types of reactions are becoming more and more common as valuations have already priced in extraordinary results, and concerns about off the charts spending rise.
For the week, the S&P is again around unchanged and trading in an even tighter range than last week, continuing to consolidate after the recent run-up. That run up drove the S&P to a 10% gain in April as it hit record highs while powering through a war with Iran. Incredibly, it was the S&Ps best month since November 2020.
With equities at uncharted levels and galactic-sized spending on AI buildouts continuing, its fitting that the NYSE welcomed the astronauts of Artemis II to the trading floor this week, hosted NASA to ring the Opening Bell and convened leaders in the industry for a Space Summit. The timing was stellar, you could say.
Back to equities…small caps are also trading on either side of unchanged this week. Looking at the sectors, 8 are higher. Energy is the leader up around 4% and over 30% YTD, but it actually fell 4% in April. Tech, Materials and Consumer Discretionary are the three sectors lower this week. Software is the main driver of Tech weakness along with spots of weakness in semi equipment. For April though, the ICE Semiconductor Index is up over 40%.
Economic data got a little lost with all the other news. March core PCE rose 3.2% from last year, inline with expectations but still well above the Fed’s 2% target. The first look at Q1 GDP showed the US economy grew 2.0%, up from Q4’s 0.5% growth but lower than expected. Consumer spending held up and business investment jumped, likely boosted by the AI build out.
Turning to commodities, Brent crude was up over 10% this week until falling on Thursday, which coincided with futures rolling from the June to July and a sharp strengthening of the yen disrupting carry trades. Treasury yields had also been up well over 10 basis points before falling Thursday, and the Dollar saw similar dynamics.
Looking ahead to next week, earnings will continue to be a focal point. Berkshire’s Q1 results and annual shareholder meeting will be held this weekend as will the 152nd running of the Kentuck Derby. Pfizer, Uber, Disney, McDonalds, AMD and some of the big private credit names are just a few of the companies also set to report results, as well as Devon Energy, which shares a first name with my daughter. Hopefully the Knicks advance to the next round.
On the macro side of things, Non-farm payrolls will headline the labor market data at the end of next week. The ISM Manufacturing PMI for April will be out tomorrow, May 1, and the Services reading out next week. The Fed’s media blackout will end, unleashing FedSpeak. Factory Orders, New Home Sales and the latest University of Michigan sentiment numbers will also be on the calendar. Globally, Australia, Sweden, Norway and Mexico’s Central Banks will have rate decisions.
That’s a wrap for this week. You can watch Market Storylines on TV.NYSE.com or on the NYSE YouTube Channel. You can also listen on the Inside the ICE House Podcast feed. Thanks for joining me. I’m Eric Criscuolo. We’ll see ya next week. Knicks in 6, I hope.