Earnings Deliver In Spades

MARKET

Stocks ripped higher for a second consecutive day on Tuesday, buoyed by robust corporate earnings that helped alleviate fears surrounding higher for longer evolving narrative.

A more positive trend emerged, fuelled by robust earnings reports. This uptick reflects investor confidence in the resilience of corporate America amid challenging economic conditions. As companies deliver strong earnings results, investors find renewed optimism about future growth and profitability prospects.

The breadth of sectors contributing to this positive momentum underscores the broad-based nature of the market recovery as companies and consumers demonstrate their ability to navigate higher for longer interest rate headwinds.

Tuesday’s economic data, however, revealed a cooling of U.S. business activity in April, hitting a four-month low due to weakened demand.

One of the most significant highlights from the PMI updates was the insight into hiring trends. S&P Global said services sector firms slashed payrolls in April at the quickest pace since the financial crisis, excluding the COVID-induced downturn.

The underwhelming data on services employment comes at a time when the Fed is grappling with containing price pressures in the services sector of the economy. Therefore, if the payroll decline signals slower demand, it might not necessarily be a negative development in the broader inflationary context.

In other positive market news, the auction of two-year Treasuries was settled at 4.898%, slightly below the pre-auction trading yield of 4.904% at 1 p.m. New York time bidding cutoff. This suggests that demand surpassed initial expectations.

Finally, investors are keenly awaiting the release of the March Personal Consumption Expenditures (PCE) index on Friday, which serves as the Federal Reserve’s preferred measure of inflation. This data point will be closely scrutinized for insights into the trajectory of consumer price movements and its implications for future monetary policy decisions.

NOT ALL A BED OF ROSES

Mind you, it is not all a bed of roses in the glamorous, high-tech world.

And Tesla isn’t the sole concern among the Magnificent 7, as Apple, the group’s symbolic “bad apple,” is facing challenges too.

Recent reports indicate a significant decline of 19% in iPhone sales in China during the quarter ending in March. If accurate, this would mark the steepest drop since the original COVID lockdowns, which led to China’s only negative-growth quarter on record.

Competition, notably from Huawei, exacerbates the issue as it is obviously not in vogue to own iPhones these days amid Xi Jinping’s initiative to restrict the use of iPhones by state-owned enterprises (SOEs) and Chinese bureaucrats, which is an enormous demand hit considering the pervasive presence of SOEs across China’s economic landscape.

China’s domestic demand presents a significant challenge. The consumption impulse within the world’s second-largest economy remains subdued. Consumer price growth flirted with deflation last month, and retail sales growth was alarmingly tepid. In essence, Chinese consumers are displaying reluctance to spend, especially on items like iPhones, which aren’t known for their affordability.