Wall Street investors are closely watching a busy week of corporate earnings reports as U.S. stock markets continue their remarkable climb to new record levels, shaking off concerns about international conflicts.
Reduced worries about escalating U.S.-Iran tensions have driven a sharp market rally this month, with major stock indexes setting fresh records in recent trading sessions. The S&P 500 index achieved its first record closing on Wednesday since January 27, while the Nasdaq reached an all-time high close for the first time since October 29.
Market participants are now focusing on what’s expected to be a strong first-quarter earnings season, which could provide additional support for the current bullish market sentiment. Almost 20% of companies in the S&P 500 are scheduled to release their quarterly results in the upcoming week.
“We’re certainly not out of the woods” from war-related developments that could cause daily market swings, said Chuck Carlson, chief executive officer at Horizon Investment Services. “But I think the market has shifted its attention now …toward corporate profits and how stocks respond to those profits.”
However, oil prices continue to trade at elevated levels. U.S. crude oil was trading around $85 per barrel on Friday, compared to $67 in late February before U.S.-Israeli military actions against Iran. The sustained higher oil prices could create challenges for stocks through increased inflation and rising Treasury yields, according to Michael Mullaney, director of global markets research at Boston Partners.
“The stock market is treating what has happened over the last six weeks as if it has just woken up from a bad dream,” Mullaney said. “Like …there are no further ramifications or repercussions from this. Which I don’t agree with.”
REMARKABLE RECOVERY TO NEW PEAKS
After the conflict began, the S&P 500 declined 9% from its January high point. Since hitting a recent bottom on March 30, the index has surged 12%, finishing this week above 7,000 for the first time.
Research from Bespoke Investment Group shows that among S&P 500 corrections of 5% to 10% dating back to 1928, the index had never previously recovered to record highs in just 11 trading days, which it accomplished on Wednesday.
“The velocity of this ascent has been nothing short of astonishing,” Jim Reid, head of macro and thematic research at Deutsche Bank, said in a note.
Several large-cap technology companies that have driven much of the three-year bull market were severely impacted during the initial decline. Some of these have excelled during the recent recovery, including Alphabet and Meta Platforms, while the broader technology sector has also outperformed.
The Nasdaq concluded Friday with its 13th consecutive winning session, marking the first time this has occurred since 1992.
“If you are looking for broad participation in the market and you are making new highs and your generals are now coming back to life a little bit, I say that is probably something that is pretty healthy,” said Jeff Weniger, head of equity strategy at WisdomTree.
Market watchers are monitoring signs of excessive speculation, including the dramatic rise in Allbirds shares after the shoe company announced it was shifting to AI computing infrastructure.
TESLA LEADS MAJOR EARNINGS WEEK
Tesla will report results on Wednesday, becoming the first of the “Magnificent Seven” mega-cap stocks to announce quarterly results. Other notable companies reporting include aircraft manufacturer Boeing, chip company Intel, and consumer goods giant Procter & Gamble. Major players like Microsoft, Alphabet, and Meta are set to report the following week.
Analysts expect S&P 500 earnings to increase approximately 14% in the first quarter compared to the same period last year, based on LSEG IBES data. Major banking institutions began the reporting season this week, showing strong trading revenue gains following a turbulent first quarter. These banks expressed caution about economic risks while noting that consumers and households remain resilient.
“The American consumer, while facing real pressure, has not broken based on early Q1 bank earnings,” Anthony Saglimbene, chief market strategist at Ameriprise, said in a written commentary.
Interest rate policy will be closely watched on Tuesday when Kevin Warsh, President Donald Trump’s nominee to head the Federal Reserve, testifies before Congress. While Trump has criticized current Fed Chair Jerome Powell for not reducing rates more aggressively, the war’s potential inflationary impact has led markets to essentially eliminate expectations for rate cuts this year.
Additional information about the conflict’s economic impact may emerge with Tuesday’s retail sales data for March. With gasoline prices reaching $4 per gallon following the war, investors are keen to assess the effect on consumer spending patterns.
“I suspect these prices aren’t dropping down anytime soon and that is going to have an effect on discretionary spending going forward,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management. “So the claim that the U.S. economy is in good shape is in my opinion near sighted.”
