Market Outlook

Escalating geopolitical tensions, strong economic data and rising interest rates challenged markets last week and drove global equities down for a third consecutive week. Following the release of retail sales growth data that came in above consensus expectations, investors once more lowered the probability of multiple rate cuts from the Federal Reserve (Fed) for 2024, and the 10-year U.S. Treasury yield reached a 6-month high. The S&P 500® extended its losing streak to seven days, the longest since February 2020, and the S&P 500 Growth Index had its worst week since November 2022. Despite the price declines, earnings season is off to a solid start, which has helped lower valuations with the S&P 500 next-12-month price-to-earnings ratio falling below 20.0 times for the first time since mid-January. This week, the first-quarter GDP initial release and monthly Personal Consumption Expenditure (PCE) report should provide insight on the health of the U.S. economy, inflation and the path forward for monetary policy.

Chart of the Week

With 14% of S&P 500 constituents having reported, the current growth rate of 0.5% is well below the 3.4% estimated blended growth rate at quarter-end. The “Magnificent 7” (M7) stocks continue to dominate earnings, as excluding the M7 drops the blended growth estimate to -5.9%.

Banks have comprised many of the early reports, and while better-than-expected net interest income offset weak loan growth, guidance was largely disappointing due to expectations for higher-for-longer rates.

2024 earnings estimates have fallen from 12% to 10.6% since last quarter and are closer to 8% ex-M7. The approximately 160 companies reporting this week should provide investors with more clarity on overall first-quarter earnings performance.

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