Earnings Season Is in the Homestretch

Review the latest Weekly Headings by CIO Larry Adam. Originally published May 3, 2024.

Key Takeaways

  • Fed rate cuts have been delayed, not derailed
  • Labor demand is gradually easing, with minimal damage
  • S&P 500 earnings revisions have been supportive

This weekend brings us one of the most prestigious horse-racing events of the year. This year, over 160,000 people will fill the stands at Churchill Downs to watch 20 horses compete in the 150th annual Run for the Roses. The event promises to be filled with the usual pomp and circumstances – colorful and flashy hats, mint juleps, high fashion and celebrities galore. And just like fans worldwide are trying to handicap this year’s Derby winner, investors have spent countless hours trying to handicap some major events in the financial markets this past week. Here’s a recap of the important drivers, along with our views on how things will play out over the rest of the year:

  • Fed rate cuts have not been scratched | The Fed held rates steady at a top rate of 5.5% for the sixth consecutive meeting this week. While no move was expected, the resilient economy and hotter inflation surprises had the market bracing for the Fed to deliver a hawkish message when Powell took the podium after the FOMC meeting. That did not happen, and Powell’s comments were more dovish than expected. While Powell was peppered with repeated questions about whether current policy settings are restrictive enough given the economy’s strong performance, he pushed back against the possibility of the Fed raising rates again – music to the markets ears! Current policy settings may just need more time to work. Cuts remain on the table, but policymakers will need to wait for more evidence that inflation is moving sustainably to 2% or for the labor market to crack.

Our View: Powell’s messaging at the press conference is consistent with our view that rate cuts have been delayed, not derailed. We agree that rates are unlikely to move higher and still pencil in two to three rate cuts by year end.