Stocks rebounded after a $2 trillion selloff, with Corporate America kicking off the busiest week for first-quarter earnings that will be key in shaping the outlook for equities.
About 180 S&P 500 companies — more than 40% of the index's market capitalization — are due to report their results this week. But the biggest expectations are for the "Magnificent Seven" megacaps, whose profits are forecast to rise nearly 40% from a year ago, according to Bloomberg Intelligence.
The focus on earnings comes after a selloff triggered by geopolitical jitters and signals the Federal Reserve will be in no rush to cut rates.
"Just beating consensus estimates for earnings won't be enough this time around," said Matt Maley at Miller Tabak + Co. "We're going to have to see much better guidance from Corporate America if the stock market is going to resume its advance."
Equity strategists at Wall Street's top banks are split on whether companies can deliver on robust earnings forecasts.
While Morgan Stanley's Michael Wilson said he expects profit growth to improve as the economy strengthens, his counterpart at JPMorgan Chase & Co., Mislav Matejka, argues that hot inflation, a stronger dollar and geopolitical tensions are clouding the outlook.
Nearly two-thirds of 409 respondents in Bloomberg's Markets Live Pulse survey said they expect earnings to give the U.S. equity benchmark a boost. That's the highest vote of confidence for corporate profits since the poll began asking the question in October 2022.
The S&P 500 topped 5,000 — halting a six-day rout. The Nasdaq 100 rose 1%, with Nvidia Corp. leading gains in big tech. Apple Inc. was named a top pick for 2024 at Bank of America Corp. on optimism over its upcoming results.
Treasuries wavered ahead of a flurry of bond auctions that will test investors' appetite after yields hit the highest in 2024.
Hedge funds are getting back to buying global equities, shrugging off broader market volatility to gobble up tech stocks at the fastest pace in two months, according to Goldman Sachs Group Inc.'s trading desk.
New long positions outpaced short sales last week while single stocks saw "the largest notional buying in over a year," the traders wrote in a note, marking a bullish turn in sentiment after hedge funds had been selling for the prior three weeks.
And U.S. earnings updates this week will be key to see if they can keep buoying risk appetite in a higher-for-longer rate environment, according to the BlackRock Investment Institute's weekly commentary. "We're overweight US stocks and see the AI theme broadening," BII noted.
"Concerns about rising interest rates, stubborn inflation, and geopolitical risks aren't going anywhere — but this week, the tech sector may be calling the shots," said Chris Larkin at E*Trade from Morgan Stanley.
