Apple earnings, Fed decision, April jobs report

The next major test for markets awaits Wednesday when the Federal Reserve makes its next decision on rate hikes.

Markets

• Dow Jones: 34,098.16 (+0.80%) 📈

• S&P 500: 4,169.48 (+0.83%) 📈

• Nasdaq: 12,226.58 (+0.69%) 📈

• Russell: 1,768.99 (+1.01%) 📈

• VIX: 15.78 (-7.34%) 📉

  *Stock numbers as of market close on April 28th

Another jam-packed week awaits investors as May gets underway, with key announcements from the Federal Reserve, Apple AAPL 0.00%↑, and the April jobs report all on the docket.

Before the opening bell on Monday morning, however, investors are expected to have a resolution on the US government's efforts to rescue troubled bank First Republic FRC 0.00%↑, that a deadline of 12:00 p.m. ET Sunday had been set for offers to buy the bank.

JPMorgan Chase JPM 0.00%↑ and Bank of America BAC 0.00%↑, the nation's two largest banks, are among those weighing bids following a government takeover of First Republic.

On Wednesday afternoon, the Fed is set to announce its latest policy decision, which investors expect will see the central bank raise interest rates by another 0.25%, as it continues to fight stubborn inflation well above its 2% goal. On Thursday, after the closing bell, Apple will release its latest quarterly earnings. And before the market opens on Friday, the US government will release the April jobs report.

Elsewhere on the schedule, key updates on activity in the manufacturing and services sectors of the economy, as well as the latest data on job openings, highlight the economic side of things.

On the earnings front, results from AMD AMD 0.00%↑, Starbucks SBUX 0.00%↑, Ford F 0.00%↑, Pfizer PFE 0.00%↑, and Uber UBER 0.00%↑ will highlight the schedule.

Markets begin the new month after a resilient close to April's trading. GDP data out Thursday disappointed, and results from Amazon AMZN 0.00%↑ late Thursday cast some doubt over the tech sector's rebound. Still, all three major averages pushed higher for the week, with the tech-heavy Nasdaq rising 1.3%.

Year-to-date, the Nasdaq is up nearly 17%, while the S&P 500 is up closer to 8.5%, and the Dow Jones Industrial Average has gained just less than 3%.

The next major test for markets awaits Wednesday afternoon.

The Fed will announce its latest policy decision at 2 p.m. ET, with Fed Chair Jay Powell set to hold a press conference a half hour later.

According to data from the CME Group, markets are placing an 85% chance on the Fed raising rates by 0.25% on Wednesday.

A 0.25% hike in interest rates would push the Fed’s benchmark rate to a range of 5%-5.25%. The benchmark rate hasn’t breached 5% since July 2007. With no new economic projections set for release, Powell's comments will be in focus for investors.

"We believe the Committee will try to convey that while a June rate hike isn’t the incumbent scenario, the next move is more likely up than down," economists at JPMorgan wrote last week.

"Odds are rising that the May hike will be the final hike of this tightening cycle," wrote Ryan Sweet, chief US economist at Oxford Economics. "When the Fed increases interest rates, it exposes any fissures in either the financial markets or the economy. For instance, the tightening in monetary policy has contributed to the recent stress in the banking system."

Federal Reserve Chairman Jerome Powell, talks on the phone before attending the International Monetary and Financial Committee (IMFC) plenary session at the International Monetary Fund Building in Washington, D.C., U.S.

Elsewhere on the economic data front, the April jobs report is expected to show 180,000 nonfarm payroll jobs were added to the US economy last month, with the unemployment rate ticking slightly higher to 3.6%, according to data from Bloomberg. In March, the U.S. economy added 236,000 jobs while the unemployment rate fell.

The report will be closely watched for any signs of a softening labor market, which might influence the Fed's June decision on rate hikes.

The Fed's aggressive rate hike path has tightened credit markets and raised concern over the health of the regional banking sector in the wake of the Silicon Valley Bank collapse.

First Republic shares sank nearly 75% last week as the lender revealed it lost $100 billion in deposits during the March banking turmoil.

Despite already receiving $30 billion from a group of the largest banks in the US, First Republic is once again searching for a rescue, with resolution expected before the markets open in the US on Monday.

On the earnings side, Apple's quarterly results out Thursday will provide another look into how big tech is holding up amid fears of an economic slowdown.

Investors will focus on whether Apple is seeing a slowdown in spending similar to what was called out by Amazon last week. And, of course, with Apple set to release new VR headsets later this year, investors will inquire — what’s the AI strategy?

Earnings season has broadly offered investors an upside surprise compared to Wall Street expectations.

S&P 500 companies are beating analysts’ estimates at the highest rate since the fourth quarter of 2021, according to FactSet. With just more than half of S&P 500 companies already reporting results, 79% of companies have reported earnings above estimates. That’s above both the five- and ten-year averages.

But as SoFi’s head of investment, Liz Young, pointed out, those beats come against "unimpressive" expectations that have been revised downward this year.

"Margins are contracting," Young said. "And a lot of the story coming into this earnings season was that margins were so fat, that they could absorb some of these cost pressures. But now we're seeing, over time, a lowering of those margins and narrowing of those margins. So there's not going to be as much breathing room for companies."

Last week, big tech earnings from Microsoft MSFT 0.00%↑, Alphabet GOOGL 0.00%↑, and Meta Platforms META 0.00%↑ catalyzed a market rally as results showed resilience despite a looming slowdown. That sentiment ultimately outweighed the gloomier outlook Amazon offered relative to its fellow tech titans.

Still, analysts argue this better-than-feared picture poses a significant challenge to those remaining bearish on the sector that was punished most harshly amid 2022's aggressive rate hikes.

"Tech investors went into this week with some white knuckles and heartburn anticipating Big Tech stalwart earnings of Microsoft, Alphabet, Meta, Intel, and Amazon and now instead head into the weekend drinking a relaxing cappuccino with much better than feared tech earnings," wrote Wedbush's Dan Ives.

"The narrative for the tech sector is becoming clearer and clearer despite many tech haters yelling fire in a crowded theater heading into first quarter earnings."

Events Calendar

Monday: S&P Global U.S. Manufacturing PMI, April (50.4 expected, 49.2 previously); ISM Manufacturing, April (46.7 expected, 46.3 previously); Construction spending month-over-month, Mach (+0.1% expected, -0.1% previously);

Tuesday: JOLTS job openings, March (9.73 million expected, 9.9 million last month); Factory orders, March (+1.3% expected, -0.7% last month); US auto sales, April (14.82 million vehicles annualized rate expected)

Wednesday: MBA Mortgage Applications, the week ended April 28; ADP private payrolls, April (+150,000 expected, +145,000 previously); S&P Global US Services PMI, April (53.7 expected, 52.6 previously); ISM Services PMI, April (51.8 expected, 51.2 last month); Federal Reserve monetary policy decision (0.25% interest rate increase expected)

Thursday: Challenger jobs cuts, year-over-year, April; Unit labor costs, first quarter (+5.4% expected, +3.2% previously); Nonfarm productivity, first quarter (-1.8% expected, +1.7% previously); Weekly initial jobless claims (240,000 expected, 230,000 previously)

Friday: Nonfarm payrolls, April (+180,000 expected, +236,000 previously); Unemployment Rate, April (3.6% expected, 3.5% previously); Average hourly earnings, month-over-month, April (+0.3% expected, +0.3% previously); Average hourly earnings, year-over-year, April (+4.2% expected, +4.2% previously); Average weekly hours worked, April (34.4 expected, 34.4 previously); Labor force participation rate, April (62.6% expected, 62.6% previously)

Source