Weekly Market Update

The week started off on a promising note as early indications for the first quarter earnings season surpassed expectations, but comments from Federal Reserve Chairman Jerome Powell on Thursday proved to be too much of an overhang on risk sentiment and stocks struggled into the end of the week. On the bright side, roughly 20% of the S&P 500 has reported Q1 results, and earnings growth is on pace to rise 6.5%, materially above the 4.7% analysts were expecting into the end of March (per FactSet). In addition, while pandemic winners such as Netflix have struggled, earnings commentary around economic reopening trends and the strength of corporate and consumer balance sheets has been encouraging, particularly from the airlines. As a result, Tuesday saw the best S&P 500 market session in about a month.

However, that optimism was short lived as the Fed continues to dominate market sentiment and later in the week Jerome Powell officially put the market on notice to expect a 50 basis point (0.5%) interest rate hike on May 4th as the Fed scrambles to tamp down inflation. Markets are now pricing in four consecutive 50 basis point interest rate hikes across each of the May, June, July, and September Fed meetings and once again both bond and stock markets moved lower as investors recalibrate monetary policy expectations. Next week Q1 earnings season heats up with almost 35% of the S&P 500 reporting, including mega caps Apple, Microsoft, and Alphabet, and ideally results continue to come in above expectations and stocks can rebound. We will also be watching the French presidential election runoff on Sunday, as a surprise victory from Marine Le Pen could have market implications.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder