Markets Gain on Big Tech Earnings; Investors Await Fed

The Dow (+0.9%), NASDAQ (+1.3%), and S&P 500 (+0.9%) exhibited modest gains for the week.  Meanwhile, taxable bonds gained about 0.8% and tax-free municipal bonds gained about 0.2%.  The 10-year Treasury yield dropped 0.12% to end the week at 3.45%.  Market movements last week were driven mainly by corporate earnings reports and inflationary measures.

Last week, mega cap technology companies reported better than expected earnings, which drove all three indices into positive territory.  Some analysts believe that their earning exceeded a low bar, but because of their sheer size, they made an impact on Q1 earnings expectations.  Thus far, about 50% of S&P 500 companies have reported their earning, and the Q1 estimates are now at -3.7%, compared to earlier estimates of -6.3% for the quarter.

Yes, the 800-pound gorilla – inflation - still has not left the room.  The March core Personal Consumption Expenditures (PCE – the Fed’s preferred measure of inflation) fell only 0.1% to 4.6% for March, still well below their target of 2%.  What does this mean?  Well, it seems pretty likely that the Fed will raise interest rates by another 0.25% on Wednesday, and may “keep rates higher for longer”.  The lingering question is whether the Fed will pause their rate hike campaign, or if they raise rates again in June.  That is expected to keep investors on the edge of their seats for the next month, but history has shown that when the Fed pauses, that has a very favorable impact on the bond market, so you can bet that we will be watching this very closely.

Lastly, another big bank went tumbling down this weekend.  First Republic Bank now replaces Silicon Valley Bank as the 2nd largest bank ever to fail, and they got purchased by JP Morgan Chase over the weekend.  Surprisingly, that has had little to no impact on the markets, as pre-market prices are currently shown very little change.

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