Market Recap 4/26/2024: Tech Titans Power Rebound as Earnings Shine

U.S. stocks roared back to life last week, buoyed by stellar earnings from technology heavyweights and reassuring inflation data. The S&P 500 jumped 2.7% to close at 5,099.96, snapping a three-week losing streak and notching its best performance since November. The tech-heavy Nasdaq Composite surged 4.2% to 15,927.90, while the Dow Jones Industrial Average rose a more modest 0.7% to 38,239.66.

Key Takeaways

• S&P 500 soars 2.7%, best week since November
• Nasdaq Composite rockets 4.2% as tech earnings impress
• Dow climbs 0.7% as blue-chip stocks steady
• Alphabet, Microsoft earnings trounce estimates, boosting sentiment
• Core PCE inflation holds steady at 2.8% YoY; easing rate worries
• Energy stocks fluctuate as geopolitical tensions roil oil prices

Tech Giants Propel Rally

The market’s rebound was fueled by blowout earnings from some of the biggest names in tech. Alphabet, the parent company of Google, set the tone with a record-breaking quarter that saw profits soar to $23.6 billion. The search giant also announced its first-ever dividend and a massive $70 billion share buyback program, sending its stock price rocketing more than 10%.

Microsoft followed suit with a 20% jump in third-quarter earnings, driven by strong growth in its cloud computing business. The software titan’s results helped allay fears of a broader slowdown in enterprise spending and reinforced the resilience of the tech sector in the face of economic headwinds.

The one-two punch from Alphabet and Microsoft reverberated across the market, with shares of other tech giants like Amazon, Apple, and Facebook-parent Meta Platforms also posting solid gains. The rally suggests that investors are betting on the continued dominance of these industry leaders, even as regulatory scrutiny and antitrust concerns loom large.

Inflation Picture Brightens

Adding to the market’s upbeat mood, the Federal Reserve’s preferred inflation gauge came in largely as expected, easing worries about a resurgence in price pressures. 

The core Personal Consumption Expenditures (PCE) index, which strips out volatile food and energy costs, rose 2.8% year-over-year in March, matching economists’ forecasts.

The tame inflation reading was seen as a green light for the Fed to keep interest rates on hold at its upcoming meeting in May. With the central bank’s rate-hiking campaign likely on pause, investors are hoping that a soft landing for the economy may be within reach.

At the same time, personal spending data showed that consumers remain a pillar of strength for the economy, with outlays rising a robust 0.8% in March. The solid reading suggests that households are continuing to spend despite signs of slowing growth and lingering inflation concerns.

Energy Stocks Swing on Geopolitical Jitters

While tech stocks stole the show, energy shares saw choppy trading as geopolitical tensions buffeted oil prices. U.S. crude futures ended the week up 0.85% at $83.85 per barrel, but not before a wild ride that saw prices spike on reports of escalating conflicts in the Middle East, only to retreat as demand worries resurfaced.

The gyrations underscore the fragile balance in the global oil market, with supply disruptions and geopolitical risks constantly threatening to upend the demand-driven narrative. For investors, the sector remains a high-risk, high-reward proposition, with the potential for outsized returns and the risk of sharp drawdowns.

Even as the broader market rallied, hedge funds were turning more cautious, according to a recent report from Goldman Sachs. The Wall Street bank’s data showed that funds moved from net buyers to net sellers of stocks in recent weeks, with managers citing concerns about stubborn inflation and escalating geopolitical tensions.

The shift was particularly pronounced in the consumer discretionary and energy sectors, where funds aggressively cut their long positions and increased their shorts. The move suggests that even as oil prices have risen, managers are bracing for potential demand destruction as the global economy slows.

The bearish tilt among hedge funds underscores the challenges facing investors in the current market environment. With valuations still stretched by historical standards and the Fed’s path forward uncertain, many managers are opting to play defense and wait for clearer signs of economic strength before diving back into risk assets.

Conservative Investors

With the market’s rebound driven largely by a handful of tech giants, conservative investors may want to tread carefully in the near term. Focus on quality companies with strong balance sheets, consistent cash flows, and recession-resistant business models. Diversification across sectors and asset classes remains key to managing risk.

Growth Investors

Growth investors may be tempted to chase the tech sector’s momentum, but selectivity is crucial. Look for companies with durable competitive advantages and long-term secular tailwinds, such as cloud computing, cybersecurity, and artificial intelligence. Be prepared to weather near-term volatility as the market digests the recent rally.

Opportunistic Investors

For opportunistic investors, the recent pullback in energy stocks may present a buying opportunity, particularly if geopolitical tensions continue to simmer. Keep an eye on high-quality names with strong balance sheets and diversified revenue streams. Commodity prices may also offer attractive upside potential if supply disruptions persist.

Our Take: Rally Encouraging, but Risks Remain

The market’s impressive rebound last week is a welcome sight for investors after a challenging start to the year. The tech sector’s stunning earnings performance and the stable inflation picture have helped restore some confidence in the resilience of the U.S. economy and the durability of corporate profits.

However, we caution against getting too carried away with the recent rally. While the blowout results from Alphabet and Microsoft are certainly encouraging, they may not be representative of the broader market. Many companies are still grappling with slowing demand, rising costs, and compressing margins, and the road ahead remains uncertain.

Moreover, the geopolitical landscape remains fragile, with the potential for unexpected flare-ups to roil markets at any time. The ongoing tensions in the Middle East and the simmering U.S.-China trade dispute are just two of the many risks that investors must navigate in the months ahead.

Given these cross-currents, we believe that a balanced approach to portfolio construction remains the prudent course. By maintaining exposure to both growth and value stocks, as well as a mix of cyclical and defensive sectors, investors can participate in the market’s upside while also building resilience against potential downturns.

At the same time, we encourage investors to stay disciplined and focused on their long-term goals. While the temptation to chase short-term gains can be strong, history has shown that a patient, diversified approach is the surest path to lasting financial success.

The week ahead brings a fresh batch of economic data that will provide further clues on the health of the U.S. economy. The April jobs report will be closely watched for signs of cooling in the red-hot labor market, while the ISM manufacturing index will offer insight into the state of the factory sector.

Earnings season also kicks into high gear, with reports from bellwether names like Apple, Amazon, and Chevron set to shape market sentiment. With expectations high after the blowout results from Alphabet and Microsoft, any signs of weakness or cautious guidance could trigger a selloff.

On the policy front, the Federal Reserve’s rate-setting meeting on Wednesday will be the main event. While no change in rates is expected, investors will be parsing the central bank’s statement and Chair Jerome Powell’s press conference for hints on the future path of policy.

As always, staying attuned to market signals and maintaining a long-term perspective will be key to navigating the twists and turns ahead. By keeping a level head and a diversified portfolio, investors can position themselves for success in an ever-changing market landscape.

Views expressed here should not be considered personal investment advice.

Sources:

CNBC

Investopedia

Nasdaq

Yahoo! Finance