By Lewis Krauskopf
NEW YORK, April 17 (Reuters) – Investors will look to a heavy week of U.S. corporate results to further fuel a stunning rebound in the U.S. stock market, which has shaken off war-related concerns to reach record peaks.
Hopes for a cooling of U.S.-Iran tensions have led to a sharp rally this month, culminating with major U.S. stock indexes minting fresh records in recent days. The benchmark S&P 500 on Wednesday posted its first record-high close since Jan 27, while the Nasdaq Composite on the same day notched its first all-time-high close since Oct 29.
Investors are turning to a first-quarter earnings season that is expected to be robust, providing a key pillar buttressing bullish sentiment for stocks. Nearly one-fifth of S&P 500 companies are slated to report results in the coming week.
“We’re certainly not out of the woods” from war-related developments that could cause daily market swings, said Chuck Carlson, chief executive officer at Horizon Investment Services. “But I think the market has shifted its attention now …toward corporate profits and how stocks respond to those profits.”
Oil prices remained at loftier levels. U.S. crude was around $94 a barrel on Thursday compared to $67 in late February, just before the U.S.-Israeli military strikes on Iran. Knock-on effects of sustainably elevated oil prices including higher inflation and higher Treasury yields could pose problems for stocks, said Michael Mullaney, director of global markets research at Boston Partners.
“The stock market is treating what has happened over the last six weeks as if it has just woken up from a bad dream,” Mullaney said. “Like … there are no further ramifications or repercussions from this. Which I don’t agree with.”
HISTORIC STOCK RALLY BACK TO HIGHS
Following the start of the war, the S&P 500’s slide took the benchmark index down 9% from its January peak. Since its recent low on March 30, the index has stormed back 11%, closing this week above the 7,000 level for the first time.
In looking at S&P 500 pullbacks between 5% to 10% since 1928, Bespoke Investment Group noted that the index had never before rallied back to all-time highs in just 11 trading sessions, as it achieved on Wednesday.
“The velocity of this ascent has been nothing short of astonishing,” Jim Reid, head of macro and thematic research at Deutsche Bank, said in a note.
A number of megacap technology and tech-related stocks, which have led for much of the three-year-old bull market, were hit hard in the initial downturn. Some of those shined in the recent rebound, such as Alphabet and Meta Platforms, while the massive tech sector also outperformed. The Nasdaq ended Thursday up for a 12th straight session, the first time that has happened since the 2009 bounce that followed a steep decline.
“If you are looking for broad participation in the market and you are making new highs and your generals are now coming back to life a little bit, I say that is probably something that is pretty healthy,” said Jeff Weniger, head of equity strategy at WisdomTree.
Investors are eyeing signs of frothiness, including the surge in shares of Allbirds after the footwear maker said it was pivoting to AI computing infrastructure.
TESLA HEADLINES US EARNINGS AHEAD
Tesla reports on Wednesday, the first of the “Magnificent Seven” megacaps to post results for the just-completed quarter. Other companies to report include planemaker Boeing, semiconductor company Intel and consumer products maker Procter & Gamble. Heavyweights such as Microsoft, Alphabet and Meta report the following week.
S&P 500 earnings are expected to jump about 14% in the first quarter from a year earlier, according to LSEG IBES. Major banks kicked off the reporting period this week, posting soaring trading revenuesafter a volatile first quarter. They noted caution about economic risks even as they said consumers and households were resilient.
“The American consumer, while facing real pressure, has not broken based on early Q1 bank earnings,” Anthony Saglimbene, chief market strategist at Ameriprise, said in a written commentary.
The path of interest rates will be in focus on Tuesday, when Kevin Warsh, President Donald Trump’s pick to lead the Federal Reserve, appears before Congress for a hearing. Trump has seethed at current Fed Chair Jerome Powell for not lowering rates more, but the war’s potential inflationary effects have led markets virtually to rule out rate cuts this year.
More insight into the war’s economic fallout could come with retail sales data for March, out Tuesday. With gas prices hitting $4 a gallon in the wake of the war, investors will be eager to see the impact on consumer spending.
“I suspect these prices aren’t dropping down anytime soon and that is going to have an effect on discretionary spending going forward,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management. “So the claim that the U.S. economy is in good shape is in my opinion near sighted.”
(Reporting by Lewis Krauskopf, editing by Colin Barr and Nick Zieminski)
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