Magnificent Seven’ Prepares to Announce Earnings Amid Market Recovery

Tesla Ends Week-Long Slide Before Earnings; Bond Market Stabilizes After $69 Billion Treasury Sale

As tech giants brace to release their earnings, the broader stock market is witnessing a rally, led by the much-watched ‘Magnificent Seven.’ Wall Street views these forthcoming earnings as a critical test of the ongoing equities bull run. Each member of this elite group of megacaps has seen a rise, continuing a recovery after a market downturn that marked the worst week in over a year. Tesla Inc. has broken its seven-day loss ahead of its earnings report later today. Following a robust $69 billion sale of two-year notes, Treasury yields saw a brief uptick before stabilizing.

This year saw equities reaching record highs, but momentum waned in April amidst indications that the Federal Reserve intends to maintain higher interest rates longer than expected. This pullback has made equities more appealing by eliminating some of the speculative excess, turning investor focus sharply towards corporate earnings, according to strategists at Citigroup Inc. The S&P 500 recently surpassed 5,070, with the tech-centric Nasdaq 100 climbing 1.5%. Nvidia Corp., a key player in the AI boom, spearheaded a rally among chipmakers. United Parcel Service Inc., often seen as an economic indicator, surpassed profit expectations. The Russell 2000 Index, which tracks smaller companies, also saw a 2% increase.

The yield on ten-year Treasuries dipped slightly to 4.59%, and the U.S. dollar weakened against other major currencies. The stock market is on track for its most significant consecutive gains in two months, following a downturn that saw the S&P 500 shed over 5% in April.

Looking ahead, besides Tesla, significant earnings are expected from Microsoft Corp., Meta Platforms Inc., and Alphabet Inc. this week, setting high stakes for the market. Expected to rise 38% from last year, according to Bloomberg Intelligence, profits for the ‘Magnificent Seven,’ which also includes Apple Inc., Amazon.com Inc., and Nvidia Corp., are crucial for the S&P 500 due to their substantial index weighting. Despite recent gains, market valuations remain high, with the ‘Magnificent Seven’ trading at 31 times forward earnings, even after the market pullback.

Corporate Highlights:

• Apple Inc. ( $AAPL)  saw a 19% drop in iPhone sales in China in the March quarter, marking its worst performance since the onset of Covid around 2020.
• Spotify Technology SA ( $SPOT)  reported a profitable first quarter as it increased subscribers and introduced new features.
• PepsiCo Inc. ( $PEP)  experienced better-than-expected sales growth, driven by strong international performance, despite a drop in North American volumes.
• Halliburton Co. ( $HAL)  announced its best first-quarter earnings in twelve years, although it predicts a slow recovery in its shale operations.
• General Motors Co. ( $GM)  raised its 2024 profit outlook by $500 million, buoyed by strong U.S. truck sales.
• General Electric Co. ( $GE)  lifted its annual profit forecast for its aerospace division due to rising commercial aircraft engine and service revenues.
• JetBlue Airways Corp. ( $JBLU)  predicted lower-than-expected sales this quarter due to overcapacity in the critical Latin America market.
• Philip Morris International Inc. ( $PM) adjusted its full-year outlook upwards following robust sales of its heated tobacco and nicotine pouch products.
• UnitedHealth Group Inc. ( $UNH)  reported potential data compromise affecting numerous Americans after a February cyberattack disrupted the U.S. health system.
• Lockheed Martin Corp. ( $LMT) exceeded first-quarter operating income expectations with increased deliveries of fighter jets and missile systems.
• RTX Corp. ( $RTX)  surpassed earnings expectations amidst a costly recall of its top-selling jet engine.
• Kering SA ( $KER.PA) anticipates a significant profit drop in the first half of the year as troubles mount at Gucci, its largest brand.