Key Takeaways
- Markets Rose Modestly Despite Weak GDP And Tariff Concerns
- Starbucks Slumps, Caterpillar Gains On Mixed Earnings And Outlook
- Investors Eye Key Data, Oil Prices, And Big Earnings
Stocks closed modestly higher on Tuesday with the S&P 500, Nasdaq Composite and Russell 2000 all posting gains of around 0.6%. The Dow Jones Industrial Average was the best performer, up 0.8%. The economic data and earnings reports began building momentum as well and will pick up speed today.
Overnight, there were a couple of notable earnings announcements worth mentioning. Starbucks missed on both earnings and revenues. The coffee company also said same store sales fell for the fifth consecutive quarter and looking forward, there could be headwinds from tariffs. That stock is indicated lower by around 8% in premarket. Caterpillar also announced earnings. This is a company that will likely be very sensitive to tariffs. Nearly 10% of sales come from China and Brazil represents 6%. Like many companies, Caterpillar provided guidance for two different scenarios and investors seem to like the outlook as the stock is higher in premarket by 3%.
On the economic calendar today, we have some big reports out this morning. Both the Personal Consumption Expenditures (PCE) Index and first quarter GDP are either out or will be released later this morning. Forecasts for Core PCE, which removed food and energy, are for an increase of 2.6% year-over-year and 0.1% month-over-month. If you add back food and energy, the forecasts are for increases of 2.2% and flat, respectively. The actual PCE numbers will be released later this morning. GDP was forecast to have gown 0.1% in the first quarter, but the preliminary reading released today shows GDP actually contracted 0.3%.
On a related note, the effects of the trade war are being seen in places other than the U.S. China reported April exports were at the lowest levels since Covid. Manufacturing is also slowing, hitting its lowest level in more than a year. China has insisted it will not bend to President Trump’s tariffs, but with multiple signs of economic weakness permeating their economy, there will certainly be pressure to resolve the situation.
Back here at home, the tariff impact is causing several companies to pull forward guidance or issue multiple forecasts that account for variations in economic conditions. This is something I discussed Monday, and I expect this trend will continue. Retailers such as Target and Walmart, which have thus far managed to avoid price increases, warned of higher prices being an inevitability. Also, according to an article in The Wall Street Journal, some retailers are also beginning to discuss the possibility of scarcity for certain items. There have been other reports downplaying this risk, but it is something worth monitoring.
For today, there are a few things I’m watching, starting with crude oil. Oil prices fell below $60 per barrel overnight. Lower oil prices are good for consumers and show up in the lower prices at the gas station. At the same time, when oil gets too low, it can be seen as a recession indicator. I’m not convinced at just below $60 we’re seeing a red light on the economy, but it is something to watch, especially in conjunction with today’s GDP report.
I’m also watching how markets ultimately interpret the economic data. The lower than forecast GDP number is a confirmation of what we’ve been seeing with respect to consumer confidence which has been falling. Markets have already sold off in premarket following its release. If the PCE numbers come in higher than forecast, don’t be surprised if you begin hearing a lot more talk about stagflation.
Finally, after the close today we have several big-name earnings. Meta Platforms, Microsoft, and Qualcomm are all scheduled to report. The expected move in Meta for the rest of the week is $42. In Microsoft, that move is nearly $18 and for Qualcomm, it is $9. Then after the close on Thursday, Amazon and Apple will report. For Amazon, the expected move is $12 and for Apple, it is $9. These numbers are important for both stock and options traders as it gives you an idea of the range in which these stocks are expected to trade this week. As always, I would stick with your investing plan and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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