A version of this article first appeared in CNN Business’ Before the Bell newsletter.Not a subscriber? You can sign up here it is. You can listen to the audio version of the newsletter by clicking on the same link.
new york
CNN
—
The market has been tough this month, but don’t count that out just yet.
Monday’s rebound, buoyed by a strong start to earnings season, could signal a big change for investors.
what’s happening: U.S. stocks fell from recent highs last week as persistent inflation and rising geopolitical tensions pushed major indexes to their weakest levels in 18 months.
The S&P 500 and Nasdaq fell for the sixth day in a row, the longest decline since October 2022. On Friday, the Nasdaq fell 2.1%, its worst day since Jan. 31, as tech stocks tumbled.
“We expected inflation to be a roller coaster,” BlackRock analysts said in a note Monday. “A further escalation of tensions in the Middle East could keep oil prices high, further increasing inflation and increasing interest rates over time.”
With the inflation rate remaining high, investors are lowering their expectations for interest rate cuts by the US Federal Reserve (Fed). They currently expect just one rate cut this year, according to the CME FedWatch tool. This is down from six cases earlier this year.
“We question whether the decline in stock prices is temporary or a major shift that anticipates inflation and interest rates settling at higher levels than before the pandemic,” BlackRock analysts said.
That’s why this week’s results are so important to the market.
“With stock prices under pressure and expectations for interest rate cuts waning, we believe the bar is higher for tech companies to meet earnings expectations and for other sectors to demonstrate earnings recovery,” they wrote. “This week’s U.S. earnings update will be key to determining whether we can continue to beat expectations and increase risk appetite in a prolonged interest rate environment.”
Tesla, Facebook parent company Meta, IBM, Microsoft, and Alphabet will all report their first quarter results later this week.
“Earnings of big tech companies may determine whether the stock market avoids its first four-week losing streak in two years,” Chris Larkin, managing director of E*TRADE trading and investments at Morgan Stanley, said on Monday. No,” he said.
good news: This earnings season has been strong so far.
About 15% of S&P 500 companies have reported first-quarter earnings, and nearly three-quarters of them posted unexpectedly positive earnings per share. About 60% of companies beat revenue expectations, according to FactSet data.
Wells Fargo analysts expect S&P 500 earnings to expand for the third consecutive quarter.
But investors are nervously waiting for the Magnificent Seven, the big tech stocks. According to the report, the market weight is very large.
FactSet estimates predict that those concerns are overblown, at least for a large portion of that group.
Companies included in the Magnificent Seven are expected to boost S&P 500 index profits in the first quarter, according to FactSet. Nvidia, Amazon, Meta, Alphabet, and Microsoft are projected to be the top five companies contributing to the S&P 500’s year-over-year revenue growth. His two remaining Magnificent Seven stocks are Tesla and Apple.
Bad news: Other economists are less certain about whether things will go well for Big Tech companies this quarter.
Analysts at Bank of America wrote that they expect earnings for the Magnificent Seven to slow compared to last year, and that they expect growth for all seven companies to slow as measured by earnings per share.
Some people are lukewarm about the hype surrounding Big Tech and artificial intelligence.
“Thanks to AI, we haven’t yet reached the craziness of the dot-com bubble of the 1990s, but we’re slowly getting there,” Dave Sekera, Morningstar’s chief U.S. market strategist, said in a Monday note. I’m starting to feel like that.”
“I think what you’ll really start to hear in this quarter, and probably in the next few quarters, is a lot of talk about AI. As an investor, you have to have a skeptical ear when it comes to companies that talk about AI. They don’t necessarily have a clear path to how AI will drive their business performance or increase profit margins.”
Overall, “I think the lack of new news this quarter is one of the good news” for Big Tech, he said.
Taylor Swift is breaking records. Also.
Swift’s latest album, The Tortured Poets Department, released on Friday, became the most streamed album across Spotify, Amazon Music, and Apple Music on its first day, my colleague Liam Riley reports. are doing.
The pop star’s 11th studio album hit a staggering 300 million streams in one day on Spotify alone on Friday, making it the most streamed album in a single day in just 12 hours.
Amazon and Apple also said Swift’s album broke records on their respective streaming platforms.
“This album broke the record for the biggest pop album of all time in first-day streams.” Apple Music said:.
Amazon Music reported In just three days, “The Tortured Poets Department” became the music service’s most streamed album worldwide in its first week.
The album’s opening track, “Fortnite (feat. Post Malone),” also earned the honor, becoming the most streamed song on Spotify in one day.
Tesla cuts prices in US, China, Germany as competition intensifies
Tesla announced aggressive price cuts in China and Germany shortly after cutting prices in the United States, as the world’s largest electric vehicle (EV) maker faces declining sales and increased competition in key markets. Reported by my colleague Laura He.
The price cuts add to a series of price cuts Tesla has made since early last year to maintain demand in the face of rising car prices due to increased competition from EV products from traditional automakers and rising interest rates. It is something. Many buyers buy. Tesla’s price cuts weighed on its profit margins, sending the company’s stock down about 4% in Monday trading ahead of its first-quarter earnings report, which will be released after the bell on Tuesday.
On Sunday, the EV giant lowered the starting prices of four models. The selling price of the model in mainland China, the largest overseas market, was 14,000 yuan ($1,932). Prices for the Model Y, the company’s best-selling car in the country, start at an all-time low of 249,900 yuan ($34,502).
In Germany, Tesla’s biggest market in Europe, the price of the rear-wheel drive Model 3 has also been cut by 2,000 euros ($2,132) to 40,990 euros ($43,707), according to the company’s official website.
The first cuts were announced in the US on Friday, with Tesla Prices for 3 of 5 models.price of Model Y, Model X, and Model S reduced in price by $2,000 The content of the Model 3 and Cybertruck, respectively, remained unchanged.
Tough times are coming with successive job cuts Tesla. The company’s stock has fallen more than 40% since the start of the year after it reported its first quarterly shipment decline in nearly four years and announced layoffs representing more than 10% of its global workforce.
