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S&P 500 Outlook Post-Friday’s Inflation Data: Analysts Weigh In

The S&P 500 closed the week with a notable 2.7% gain, propelled by robust earnings performances from tech behemoths Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL), alongside a PCE report for March that met expectations.

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Despite this positive momentum, Meta Platforms (NASDAQ: META) experienced a sharp decline of over 10% in its stock price following a higher capex/opex forecast.

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Companies within the S&P 500 that exceeded earnings estimates this quarter witnessed a median share outperformance of a mere 0.2%, while those falling short of estimates saw their shares underperform by a median of 4%, marking the most significant gap in at least eight years.

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The focus on inflation data persisted last week alongside the Q1 earnings season. March’s core PCE inflation exhibited a month-on-month increase of 0.32% and a year-on-year rise of 2.8%.

Citi economists anticipate a Federal Reserve rate cut in July, projecting a total of 100 basis points of cuts this year. While they suggest that activity data, particularly in the labor market, could prompt a June cut, robust spending data in March, particularly in sectors like healthcare, may delay decisive action until July.

Evercore ISI economists highlighted that while March’s headline and core price deflators met expectations, revisions upward were made for January and February estimates. They forecast an increase in payroll employment of +200K in April, a dip in the unemployment rate to 3.7%, and a month-on-month growth of +0.3% in average hourly earnings, or 4.1% year-on-year.

Bank of America’s economists contend that Friday’s data indicates strong demand rather than “stagflation,” suggesting that the Fed will likely maintain its current stance in the near term.

The upcoming week is poised to be eventful, with Amazon (NASDAQ: AMZN) scheduled to report earnings on Tuesday and Apple (NASDAQ: AAPL) on Thursday. Additionally, the Federal Reserve is set to release its monetary policy statement on Wednesday following a two-day meeting.

Navellier & Associates anticipate that this week’s meeting and FOMC statement will be significant. They note the historical tendency for the Fed to cut key interest rates before Presidential elections and suggest that such cuts remain in the pipeline, as indicated by Fed Chairman Jerome Powell.

“However,” they caution, “we will see what the Fed thinks going forward.”

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