Author: Davis Finke, CFA
This week, corporate earnings were front and center, with 180 S&P 500 companies reporting results. Overall, earnings have been impressive, with 84% of companies beating expectations. As a result, first-quarter earnings growth for the index is now expected to reach 27%, up from roughly 13% at the end of March. If 27% is the actual growth rate for the quarter, it will mark the highest earnings growth rate reported by the index since the fourth quarter of 2021. Among the companies reporting this week were five members of the Magnificent 7 — Apple, Amazon, Alphabet, Microsoft, and Meta. Results were broadly positive, with each company beating revenue and earnings forecasts, reinforcing the continued strength of some of the world’s largest and most influential technology companies. Despite those solid results, the market reaction was mixed. Meta and Microsoft both declined on Thursday, highlighting investor concern around elevated capital spending and its implications for future profitability.
Beyond earnings, the situation in Iran remains fluid. On Thursday, Iran’s supreme leader said the United States had no place in the future of the Persian Gulf region and vowed that Iran would retain its nuclear capabilities. With no immediate resolution in sight, oil prices spiked again to around $110 per barrel, renewing concerns about inflation and the potential impact on the U.S. economy. However, despite the uncertainty, December oil futures remain near $80 per barrel, suggesting the market still expects the disruption to be short-lived.
This week also brought a wave of important economic data, including first-quarter GDP, inflation readings, employment figures, and a highly anticipated Fed meeting, during which Chair Powell announced his intention to remain on the Federal Reserve Board of Governors after his term as chair ends. The data continued to show signs of resilience, with GDP rebounding from the prior quarter, initial jobless claims falling to their lowest level since 1969, and inflation coming in largely in line with expectations. In addition, the Fed left the federal funds rate unchanged while noting that the conflict in the Middle East is contributing to uncertainty around the U.S. economic outlook.
Looking ahead to next week, investors will continue to digest earnings results, with another 128 S&P 500 companies expected to report. Beyond the headline figures, guidance on demand, margins, and spending plans will likely play an important role in shaping market sentiment. Investors will also remain focused on developments in the Middle East, as any meaningful escalation could influence oil prices and drive short-term market volatility.
