Can you feel it?
It’s that feeling when the rollercoaster is coming over the top of a hill and you’re not sure where things are headed. Another dip, drop, level ground, what’s it going to be?
That’s the feeling most investors are feeling as we head into this week. Well, at lest those that haven’t gotten off the ride yet.
Stocks are at a tipping point in terms of the next 10-20% directional move and we’re heading into one of the weaker months of the year for seasonality. I’ll have more on that.
Investors bounced back with vigor last week as the combination of Trump not firing Powell combined with a lack of news on the trade war front to make for the best opportunity in stocks in more than a month.
The S&P 500 and Nasdaq 100 put in their best shot at a rally out of the April lows as trading volume started to represent the possibility that investors are starting to trust the market to not pull the rug out from under them again.
That should all be tested and possibly confirmed this week as the quarter’s heaviest week of earnings results will flood the headlines.
So far, the earnings season has been much better than expected, giving investors s sense that the worst case may be off the table.
With 36% of S&P 500 companies reporting Q1 2025 results, 73% of the companies have beaten earnings estimates with 64% topping their revenue forecasts.
Earnings are growing at a solid 10.1% year-over-year pace, marking back-to-back quarters of double-digit gains.
Since March 31, earnings estimates have improved across seven sectors thanks to strong EPS surprises.
Looking ahead to Q2, guidance remains mixed - 10 companies are calling for lower earnings, while 12 are expecting growth. This has been the number that is helping investors re-engage stocks.
The expectations ahead of the earnings season kick-off were that we would see a wave of companies lowering their outlooks due to the trade war uncertainty. That hasn’t happened yet, leaving a door of opportunity open for optimistic investors.
This week’s reports from companies like Amazon (AMZN), Microsoft (MSFT) and Apple (AAPL) will act as the “Go”-” No-Go” that will fuel the next 10% directional move in stocks.
This week’s earnings lineup is packed with heavy weights across tech, consumer, and energy sectors. The spotlight is squarely on Apple, Microsoft, and Amazon - any positive surprises here could reignite investor confidence after last week’s rally.
It’s this simple, the market needs these reports to come in better than expected along with positive guidance for last week’s rally to continue.
One of the more critical areas to watch – outside of the obvious Mag 7 stocks – is the consumer-related companies. Visa and Mastercard reports will offer critical insights into the health of the consumer.
Watch for two key metrics in these reports: Are late payments rising alongside record-high credit card balances? And are consumers starting to rein in spending, signaling recession fears?
Over the weekend, CNBC reported that “More Americans are financing groceries with buy now, pay later loans — and more are paying those bills late”. The article is a subtle and direct warning to investors that the market is starting to look and feel as though it is heading into a recession.
The reporting is another sign that the economy may be exhibiting signs of a “Steal Recession” as many Americans continue to feel the pains of high inflation and interest rates.
Energy names Exxon Mobil and Chevron will also report, providing a read on commodity markets and global demand. Other notable releases include Meta Platforms, Berkshire Hathaway, Eli Lilly, and Coca-Cola - but it’s the tech and credit card sectors that could set the tone for the weeks ahead. Stay tuned - this week could reshape sentiment.
I’ve mentioned Tesla (TSLA), Visa (V) and Mastercard (MC) already, and are all part of the Consumer Discretionary ETF (XLY) which has seen losses as much as 26% over the last four months.
The sector is a critical look at the economy as it includes companies that produce or provide services that are – as the name suggests – discretionary.
Last week, the sector took a shot as airline companies like Southwest (LUV) and United Airlines (UAL) removed their outlooks for 2025 as travelers are cutting back on their bookings. This movement comes on top of the cost cuts by government employees following the institution of D.O.G.E. and thousands of job cuts that the government has endured.
But there’s more to the consumer discretionary slump that just airlines and government cuts.
This sector carries the everyday names that consumers frequent like Dominoes Pizza, which just missed their revenue target on Monday morning.
Cruise Liners, makeup companies, fast and casual food restaurants along with Automobile companies, the consumer discretionary sector’s reach into the everyday consumer activity makes it one of the critical sectors to ke
