U.S. Stocks Face Multiple Challenges: Will Big Tech Earnings and PCE Data Halt the Decline?

Analysts Notebook joined discussion · Apr 22, 2024 21:11

The Federal Reserve's resetting of its interest rate clock, the rapid rise in US bond yields, and the escalating conflict in the Middle East have led to the biggest outflow of funds from the US stock market in over a year.Investors are keenly monitoring the upcoming earnings season for technology companies to see if it will serve as a stabilizing force for the U.S. stock market.

Fed Resets Clock on Interest-Rate Cuts

Are Rates High Enough? Recent remarks from Federal Reserve officials imply that earlier predictions of three rate reductions this year, as forecasted in March, might have been overly optimistic. Fed Chair Powell last week intimated that achieving the certainty needed for rate cuts could take "longer than anticipated," dampening expectations for more than two rate reductions by 2024, with some experts even speculating that cuts might not materialize at all. New York Fed President Williams, citing the robust state of the American economy, expressed no immediate pressure to slash rates.

Financial institutions are also recalibrating their outlook on monetary policy adjustments. Oppenheimer, a heavyweight in asset management, anticipates that the Fed may hold off on rate cuts until post the U.S. presidential election in November, suggesting, "We are firmly of the view that any rate reductions by the Fed will occur in the latter half of this year, potentially post-election, to circumvent any perception of political bias or influence in their actions. Consequently, the Fed is likely to maintain its current stance until inflation relinquishes its persistence."

2-Year U.S. Treasury Yield Testing the 5% Threshold Trigger a Stock Market Selloff

Last year, a rise in the yield of $U.S. 2-Year Treasury Notes Yield (US2Y.BD)$ eventually led to a stock market selloff beginning in August, and it seems this pattern may be reemerging, with Treasury yields experiencing a significant uptick this month.

Since January of this year, the yield on U.S. two-year Treasury has climbed from 4.15% to 4.99%, approaching the significant 5% threshold, a level comparable to that of last August.

U.S. Stocks Face Multiple Challenges: Will Big Tech Earnings and PCE Data Halt the Decline?

Furthermore, with the onset of April, investors have maintained a more significant stake in equities and other risk-oriented assets compared to their positions in August of the previous year, potentially exposing the market to amplified risks.

The substantial volume of government bond auctions could significantly impact yield trajectories in the near term. The yield on two-year Treasuries settled around 4.99% last week, suggesting that Tuesday's auction could fetch a coupon rate of at least 5% for the first time since last year. This week's U.S. Treasury auctions, totaling $183 billion, will be a crucial test to determine whether yields have peaked after reaching the highest levels since 2024.

U.S. Stock Funds Face Largest Annual Sell-Off: Has the AI Hype Cooled Down?

Investors are exiting en masse: LSEG data indicates that concerns over persistent restrictive monetary policy and escalating Middle Eastern conflicts prompted a net outflow of $21.15 billion from U.S. stock funds last week.

The semiconductor sector, bolstered by optimistic prospects for artificial intelligence, has been one of the best-performing sectors this year. However, it just suffered its largest weekly plunge in almost two years, plummeting by 9.2%.

Jordan Klein, an analyst at Mizuho Securities, noted that there has been a "broad retreat in the semiconductor sector," with the pace of the pullback accelerating day by day over the past week.

$NVIDIA (NVDA.US)$, a leading AI company and Mag7's top performer, saw its shares dive 13.6% last week, the sharpest weekly fall since early September 2022, and a 10% drop on Friday marked its biggest one-day plunge since March 2020.

Will Big Techs and the 'Fed's Favorite Inflation Metric' Save the US Stock Market This Week?

Following the impact of unexpectedly high CPI data for March on US stocks, market focus is shifting to the Personal Consumption Expenditures (PCE) Price Index to be released this Friday. According to Bloomberg, the core metric, which strips out energy and food, is expected to rise 0.3% from the prior month after a similar gain in February.

Additionally, earnings season is progressing. This week, approximately 178 S&P 500 component companies, accounting for over 40% of the index's total market capitalization, are set to report their results. However, the greatest expectations are from the large tech firms; Tesla, Meta, Microsoft, and Alphabet, Google's parent company, all members of the US stock "Big Seven" tech giants, are due to release their financial reports this week.

Read more: What to Expect in the Week Ahead(TSLA, META, GOOG, MSFT Earnings; PCE Inflation)

Source: moomoo, StoneX, LSEG, Bloomberg

Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more

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David Chen481 : Observing closely

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Gilley : ima say as long as its bad news it will go up if things are good it will be neutral if war happens in another country America will crash lol this market beyond messed up so

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73372627 : hope one day the asiatic written will be translate.

market is for up and down. Investors must calculate theirs next move and do not come wrote against one market or other, If war happend do not be happy Gilley because you will lose big. Investing and feelings do not make good mixt drink.

I like this post from analist. Good job fellow investor.

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