U.S. equities roared back from last week's slump to post broad gains Monday, as signs of easing tensions in the Middle East and a drop in crude oil prices sparked renewed buying vigor. The S&P 500® index (SPX) and the Nasdaq Composite® ($COMP) both gained about 1% and broke six-session losing streaks.
Semiconductors led the technology sector higher after leading the way down last week, with chip leader Nvidia (NVDA) jumping 4.3%. WTI Crude Oil futures (/CL) dropped after Iran said it won't escalate its conflict with Israel.
Investors also await quarterly earnings reports from several major companies this week, including Tesla (TSLA), expected to release results after Tuesday's close.
Last week's market slump was driven by mega-cap shares, which may have obscured several signs of strength in other areas, said Kevin Gordon, director, senior investment strategist, at Schwab. For example, last Friday, nearly 70% of NYSE stocks posted gains, while the S&P 500 dropped almost 1%.
"The market’s underlying breadth is starting to improve and there's a leadership rotation underway, with sectors such as energy outpacing other groups," Gordon said. "It’s too soon to say whether this correction has flushed out completely, but improvement under the surface is a major plus."
Here's where the major benchmarks ended:
• The S&P 500 index rose 43.37 points (0.9%) to 5,010.60; the Dow Jones Industrial Average® ($DJI) gained 253.58 points (0.7%) to 38,239.98; the Nasdaq Composite advanced 169.30 points (1.1%) to 15,451.31.
• The 10-year Treasury note yield (TNX) was little changed at 4.617%.
• The Cboe Volatility Index® (VIX) fell 1.41 to 16.39.
Chipmaker strength lifted the Philadelphia Semiconductor Index (SOX) up 1.7% Monday, partially reclaiming last week's 9.2% tumble. Banking shares were also among the strongest sectors, while the Russell 2000® Index (RUT) advanced 1%. WTI crude futures earlier dropped to just a few cents above $82 per barrel, the lowest intraday price since late March.
Stocks on the move
The following companies had stock price moves driven by analyst ratings, quarterly earnings or other news:
• Cardinal Health (CAH) sank 5% after the health-care company said its drug distribution contract with UnitedHealth’s (UNH) OptumRx will not be renewed when it expires in June. UnitedHealth shares fell 2%.
• Informatica (INFA) plunged more than 10% after the data management company tumbled nearly 9% following reports acquisition talks with Salesforce (CRM) broke down. Salesforce rose 1.3%.
• Riot Platforms (RIOT) soared 23.1% following last week's bitcoin halving event. Also, JPMorgan Chase (JPM) reiterated its "overweight" rating on the bitcoin leader, saying it's confident Riot will remain an industry leader.
• Tesla fell 3.4% to a 15-month low following reports the electric vehicle producer will cut prices on its Model 3 in China.
• Verizon Communications (VZ) lost 4.7% after the telecommunications company reported slightly stronger-than-expected quarterly profit but also softer-than-expected revenue.
• Zions Bancorporation (ZION) gained 3.5% after the regional bank’s quarterly earnings and net interest margins bettered expectations.
Tuesday's earnings calendar features Tesla, whose shares have tumbled 42% this year, worst among the so-called Magnificent Seven mega-cap companies. First-quarter earnings expectations are low for the EV maker, meaning any positively interpreted news could generate a welcome response from investors. Key questions for Tesla include new model plans and its cost outlook in an increasingly competitive market for EVs.
Analysts estimate Tesla earned about 48 cents per share in the first quarter, down from 85 cents during the same period in 2023.
GE Aerospace (GE), PepsiCo (PEP), Texas Instruments (TXN), United Parcel Service (UPS) and Visa (V) are also expected to report results Tuesday. Earnings from several major technology companies are expected later in the week. Those include Alphabet (GOOGL), Meta Platforms (META), and Microsoft (MSFT).
As earnings season accelerates, "the spotlight is shifting to revenue growth and guidance," Schwab's Gordon said.
"Many sectors have already gone through their aggressive cost-cutting cycles and given revenue growth has continued to lose steam over the past year, there will likely be an increasing amount of attention paid to whether the top line has remained healthy," he said. "So far this season, the market is punishing companies that miss on sales estimates much more than usual."
PCE, GDP reports ahead
Worries over a potential conflict between Israel and Iran that could disrupt global oil supplies was one factor driving last week's stock market nosedive. Sharply reduced expectations for interest rate reductions from the Federal Reserve also weighed on equities and helped fuel a continued upswing in Treasury yields.
Investors now look toward several economic releases this week that may factor into Fed policy decisions and the longer-term outlook for rates.
The Commerce Department's March Personal Consumption Expenditures (PCE) prices report, scheduled Friday, looms as a particularly critical data set. The PCE index measures average prices related to U.S. domestic consumption and is considered the Fed’s preferred gauge of inflation.
The PCE has been running cooler than other inflation readings, such as the Consumer Price Index (CPI), which outpaced analyst consensus for the first three months of 2024. Analysts expect both overall and core PCE rates to rise 0.3% in March from February, according to Briefing.com. Those numbers would match February's month-over-month increase.
Recent year-over-year PCE comparisons showed inflation dropping closer to the Fed's 2% long-term target. Core PCE in February was up 2.8% from the same month in 2023, down from 2.9% in January and the lowest annual rise since March 2021. The core rate excludes food and energy prices.
"It’s a busy week of economic data but Friday’s PCE report should make the most headlines," said Collin Martin, a director of fixed income strategy at the Schwab Center for Financial Research.
"Stickier-than-expected inflation has pushed back the expected timing of a first rate cut and Fed officials have generally maintained their view that they’ll need to see convincing evidence that inflation is approaching its 2% target before it cuts rates," Martin said.
"We still expect the next move by the Fed to be a cut rather than a hike but that cut shouldn’t come until later this year," Martin added. "For rate hikes to be firmly on the table, we would likely need to see core inflation readings accelerate higher, rather than a stall at current levels."
Late Monday, traders priced 96% odds the funds target will remain unchanged at 5.25% to 5.5% following the Federal Open Market Committee's (FOMC) meeting April 30 – May 1, according to the CME FedWatch Tool.
The indicator shows 83% odds the rate will be held unchanged following the FOMC's June 11 – 12 meeting and a 59% chance for no change following the committee's July meeting.
Before PCE, the government will release its first estimate for first-quarter gross domestic product (GDP). Estimates have been climbing as economic numbers came out strong, reinforcing expectations that the Fed could wait longer to cut rates. The Atlanta Fed's GDPNow model now pegs GDP to grow at a seasonally adjusted annual rate of 2.9%, not much below the final fourth quarter reading of 3.4%.
Other reports to watch in the coming days include New Home Sales Tuesday and Durable Goods Wednesday.