The Zhitong Finance App learned that although people are increasingly worried that the Federal Reserve will maintain high interest rates for a longer period of time, US stocks rebounded again as technology stock earnings reports triggered a market rebound. The Nasdaq Composite Index rose more than 4% last week, and the S&P 500 Index rose nearly 3%. Meanwhile, the Dow Jones Industrial Average rose less than 1%.

In the coming week, the Federal Reserve's interest rate decision, the April non-farm payrolls report, and the financial reports of big tech giants Apple (AAPL.US) and Amazon (AMZN.US) will all test recent market optimism.

Also, the latest data on job vacancies, service and manufacturing activity, and consumer confidence will also be published.

Companies reporting earnings this week also include AMD (AMD.US), Coca Cola (KO.US), Lily.US (LLY.US), McDonald's (MCD.US), Novo Nordisk (NVO.US), Starbucks (SBUX.US), and Ultra Micro Computer (SMCI.US).

The Federal Reserve's latest interest rate decision

The Federal Open Market Committee (FOMC) of the Federal Reserve will make the latest decision on the interest rate policy in the early hours of Thursday morning Beijing time, after which Federal Reserve Chairman Powell will hold a media press conference. The market generally expects the Federal Reserve to keep interest rates unchanged.

As the market has lowered expectations of interest rate cuts, investors will pay close attention to how the Federal Reserve interprets recent higher-than-expected inflation data.

Matthew Luzzetti, chief US economist at Deutsche Bank, wrote in a research report on Friday: “A new round of rising inflation data may trigger more hawkish information at the May FOMC meeting. Although we expect the Commission to maintain an easing trend, we also expect the statement and press conference to echo Chairman Powell's view that stronger inflation data indicates that it will take longer to gain confidence in a slowdown in inflation.”

Since Powell publicly stated on April 16 that inflation will take “longer than expected” to fall to the Federal Reserve's 2% target, the price increase data has exceeded expectations. The core personal consumption expenditure (PCE) index, which excludes food and energy costs, which is closely watched by the Federal Reserve, rose 2.8% year over year in March, higher than the 2.7% forecast, and is in line with the annual growth rate in February.

According to the Chicago Mercantile Exchange's FedWatch tool, after the data was released, investors believed that the probability that the Federal Reserve would cut interest rates in July was only 33%, down from 83% a month ago.

Labor Market Overview

As the Federal Reserve promises to keep interest rates high until it is convinced that inflation is falling, people continue to focus on the health of the labor market. Flexible data makes economists hope that, while interest rates remain high, the inflation rate can be reduced to 2% without causing the economy to fall into recession.

According to compiled data, the April employment report is expected to show that the US economy added 250,000 non-farm payrolls, and the unemployment rate stabilized at 3.8%. In March, the US economy added 303,000 jobs, while the unemployment rate fell to 3.8%.

Furthermore, economists generally agree that a strong labor market shows no signs of cracks.

Bank of America economist Michael Gapen wrote in his weekly report to clients on Friday: “We don't expect the labor market to slow down in the near future.”

Major tech companies' performance continues to grow

So far, the market's reaction to the big tech companies' performance has been mixed. Meta (META.US) plans to invest heavily in artificial intelligence, and its second-quarter revenue guidance fell short of expectations, which disappointed investors and caused the social media giant's stock price to drop by more than 10% after the announcement of earnings reports.

As it turns out, Google (GOOGL.US) was the winner last week: after the company announced a cash dividend plan of $0.20 per share, approved a $70 billion share repurchase plan, and announced results that exceeded expectations, the company's share price soared more than 10%. The company also surpassed $2 trillion in market capitalization last Friday.

Baird's tech sector strategist Ted Mortonson believes in this regard that one of the important reasons behind the differences in trends in these two major technology stocks is the “position game.” Meta shares have soared over the past year, while Google's performance hasn't been that good.

This claim will be tested again in the coming week, when both Apple and Amazon will announce their results. Due to growing concerns about slowing demand, Apple's stock price has fallen by more than 11% this year. Meanwhile, Amazon's increase of more than 18% this year is hovering near an all-time high.

Overall performance

With the exception of big tech companies, the S&P 500 Index will have its busiest two-week performance reporting period this week. According to FactSet statistics, 46% of companies in the index have already announced their results for the current quarter, and the index's earnings per share are expected to grow by 3.5%, slightly higher than the 3.2% forecast before the earnings season begins.

Overall, the stock price response of companies that exceeded expectations in terms of earnings per share and revenue was moderate, while the share price performance of companies that performed less than expected was more negative than usual.

The strategist said that after the large-scale rise in the market at the beginning of this year, it seemed difficult for companies to impress investors and push the stock market to make a major response.

Citibank strategist Drew Pettit said, “Not only do you need (profit, revenue) and (guidance) to meet or exceed expectations, you also need to have confidence in the long-term development trajectory of these companies.”

Despite this, there is still a glimmer of hope for the overall results so far: profit margins are rising. The net profit margin of the S&P 500 index constituent companies is expected to be 11.5% for the quarter, up from 11.2% in the previous quarter, and the same as the same period last year.

As Truist Co-Chief Information Officer Keith Lerner pointed out in January, one of the key questions facing investors in 2024 is whether companies can maintain profit margins while inflation and interest rates remain high. Currently, the answer seems to be yes.