Fed Week
Equities and the S&P 500 ended April with gains near 1.5% as several large technology names including Microsoft and Facebook reported better than expected earnings. The S&P 500 gained 0.9% last week as did the Dow index. The growth-oriented Nasdaq was the big winner on the week, jumping 1.3%. The rally in big tech stocks has pushed the weighting of the top 10 stocks in the S&P 500 near 30%. As real interest rates have pushed lower over the past three months, growth stocks have outperformed value stocks by more than 9%. This is despite the 10-year yield being flat, which most investors seem to be watching.
Updates by Sector
By sector, communication services had the largest increase of the week, up 3.8%, followed by a 2.4% increase in technology. Real estate, consumer staples, energy and consumer discretionary also posted weekly gains. Utilities fell -1%, followed by declines of -0.6% each in industrials and health care. Financials and materials also declined.
The communication services advance was led by shares of Facebook parent Meta Platforms (META), which rose +13% on the week. Meta reported Q1 results above Street consensus estimates and issued a stronger-than-expected revenue outlook for the current quarter.
Microsoft (MSFT) rose 7.5% as the software company also reported stronger-than-expected quarterly results. The drop in industrials came as shares of Old Dominion Freight Line (ODFL) fell -8.2% amid weaker-than-expected Q1 earnings per share and revenue from the truckload shipping company. Also weighing on industrials, shares of United Parcel Service (UPS) slid -7.9% as the package delivery company reported Q1 results slightly below market expectations and trimmed its full-year revenue outlook.
In health care, shares of AbbVie (ABBV) fell-7% as the biopharmaceutical company reported EPS and revenue below analysts’ mean estimates. Although the company raised its guidance for full year adjusted EPS, AbbVie said it is discontinuing two drug pipeline programs.
Over 150 companies in the S&P 500 are due to report this week. This week’s reports include the largest stock in the S&P 500, AAPL. Other names reporting include Costco (COST), Starbucks (SBUX), Regeneron (REGN), Zimmer (ZBH), Pfizer (PFE), DD, Qualcomm (QCOM), COP, and MRO among others.
Federal Reserve Updates
The Federal Reserve remains on track to raise rates another 25 basis points this week, hopefully in a “dovish manner”. 1st quarter 2023 U.S. Q1 GDP 1.1% annualized, much less than economists expected. The slowdown was largely driven by an inventory drawdown, that was partially offset by stronger consumer spending. Household spending stalled in March, foreshadowing an even slower 2nd quarter. On the inflation front, core PCE prices, one of the Fed’s favorite inflation gauges, rose 0.3% in March and were up by a still elevated 4.6%. Powell’s super core metric (core services minus housing) rose 0.2%, with the yearly rate slowing to 4.4%.
Look for the Federal Reserve to signal that it will pause its rate hiking cycle in June later this week. Credit tightening from the regional bank collapses is helping to stop the monetary tightening cycle sooner than most economists expected, however they are still expecting the Fed to retain a hawkish stance and hold rates steady for the rest of the year
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April Sector Returns
