A busy week ahead of US companies reporting Q1 earnings with household names including General Electric (GE), Microsoft (MSFT), Ford (F), Twitter (TWTR), Amazon (AMZN), and Apple (APPL) all set to deliver their latest quarterly financial updates. The two standout releases this week had very different outcomes with Netflix (NFLX) plummeting by over 35% on extremely weak subscription numbers, while Tesla (TSLA) jumped by around 8% on robust sales and profits. The fact that renowned hedge fund billionaire Bill Ackman dumped his recently acquired Netflix holding for a loss of $400 million after the results do not bode well for other stay-at-home tech stocks. Next week’s earnings calendar may well provide a few surprises of its own.
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While the fine print of companies’ balance sheets will be poured over next week, the 800-pound gorilla in the room – US interest rates and government bond yields – will need to be watched even closer. Over the past months, market expectations for US rate hikes have grown to such an extent that the market is now beginning to price in the Federal Reserve aggressively front-loading rate hikes with four 50 basis point increases now seen at the next four FOMC meetings. The last the Fed hiked rates by 50 basis points was back in May 2000. While higher interest rates may help to boost bank earnings, the tech sector – less the mega-names like Apple and Amazon – looks less appealing the higher interest rates go.
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The S&P 500 is looking to end the week flat after Thursday’s bearish engulfing candle wiped out the prior three day’s gains. The 200-day simple moving average acted as resistance and the indices are now below all three averages (20-, 50-, and 200-), another negative sign. If support at 4,361 is broken convincingly, 4,270 looks likely to come into play.
S&P 500 DAILY PRICE CHART – APRIL 22, 2022
Heightened US interest rate hike expectations are weighing heavily on US indices. Will next week’s bumper crop of Q1 US earnings help to steady the market?
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