Five Things to Start Your Week

Good morning. Our Alpha Portfolio is +6.75% YTD. Leading the gains is Silver at +27.3%. On the other hand, Synchrony Financial is down by -6.1%.

Market Snapshot

US stock markets were little changed last week, with the S&P 500 flat and the Nasdaq up 1.3%. Stocks are holding near record highs at a time when expectations of Fed easing are getting scaled back and longer-term Treasury yields are trending higher.

With the Q1 reporting period now winding down the results have been perfectly acceptable in the market’s eyes.

• About 470 of the S&P 500 have now reported Q1 results.

• 78% have topped earnings expectations according to Refinitiv’s tally.

• Overall, that leaves S&P 500 earnings growth tracking at 8% y/y, compared to expectations of 5% y/y growth ahead of the reporting period in early April.

Across the World

Asian markets have mixed performance; Taiwan's TSMC surged 5.49%, while Chinese giants Alibaba and JD.com dropped significantly, down 8.22% and 14.18%, respectively, amid regulatory concerns.

In Europe, ASML gains 3.38%, yet France's TotalEnergies declines 2.28%. The UK sees AstraZeneca rise 2.13%, offsetting Shell's 1.53% dip.

North America's landscape is varied, with Canada's Shopify falling 2.67% and Royal Bank of Canada dropping 1.40%.

In Latin America, Petrobras declines 1.33%, continuing its downward trend.

Commodities show mixed signals; Australia's BHP falls 2.99% despite a positive outlook in other regions.

Where do the Markets go from here?

The market, always looking six to twelve months down the road, doesn’t appear to be seeing much trouble on this front. From a macro perspective, there are a few big-picture factors with a good history of dictating the path of earnings growth, and the picture is mixed:

1. Economic Growth: US growth is moderating, with Q1 GDP at 1.6% a.r. and expected to remain below potential. The 10% correction in the S&P 500 last year may have priced in this soft patch, with some stabilisation seen in indicators like ISM new orders and payrolls.

2. Yield Curve: The deeply inverted yield curve is concerning for investors, indicating a potential economic slowdown and impacting sectors like banks. Despite some steepening in late 2023, progress has stalled with the 10s/2s curve at -40 bps, and stubborn core inflation makes near-term rate cuts unlikely.

3. US Dollar: A strong US dollar weighs on domestic corporate earnings, though the 2023 pullback supported growth. However, the dollar's downward momentum has stalled as Fed easing expectations are pushed out, although future Fed easing is expected to reassert downward pressure on the dollar through 2025.

4. Profit Margins: Corporate profit margins remain resilient, with no significant contraction seen typically at the onset of a recession. Firms are effectively passing higher costs to consumers, maintaining profit levels as a share of GDP.

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Newsworthy

This is what’s caught our eye over the past week.

• Wall St: fastest settlement of trades in a century.

• UK Markets unafraid of a Labour Govt.

• A milli ($1 mil) a year is insufficient for some.

• Telegram: the app dividing Europe.

• GameStop raises nearly $1 billion

Ali is the Founder & Editor of The Insider Memo, Follow him on X @ASAInsights

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