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Weekly Market Update for April 26, 2024

by Jared Plotz, Director of Research

Markets rebounded this week, overcoming recent concerns of poor economic growth amidst stubborn inflation. The S&P 500 advanced +2.7% and the Nasdaq +4.2%. Softer manufacturing data along with a tepid initial Q1 GDP estimate (+1.6% annualized) were met with a higher inflation reading (Core PCE, the Fed’s preferred metric, rose +3.7%). Fixed income securities were relatively flat on the week, even as the 10-year Treasury finished up a further 5 basis points at 4.67%.

We saw vastly different stock reactions to earnings reports from two of our core equity holdings this week. Wednesday afternoon, Meta (aka Facebook) reported robust 27% revenue growth versus the prior year, as daily users rose 7% to 3.2 billion people worldwide. Expenses rose at just a 6% clip, resulting in a big jump in profits. But the stock floundered, dropping 10% afterwards, as the company guided next quarter to “just” 18% revenue growth and revealed plans for greater artificial intelligence investments over multiple years (with unknown timing of future profits from such investments).

Google reported a day later and saw its stock climb 10% after also posting strong results. Revenues rose 15% versus the prior year, and the company noted their Search ad business is performing better than expected. Expenses rose a modest 5%, allowing profits to grow 57%. Similar to Meta, Google lifted their targeted capital investments; but unlike its peer, they may begin reaping rewards sooner than later. Given such, Google decided to initiate its first-ever dividend program and authorize an additional $70 billion buyback program.

We’d be remiss not to mention a newer holding, Vertiv. They manufacture cooling systems for data centers that house many of the most advanced AI servers. The company posted 8% y/y growth in revenue, but a 60% rise in new orders – suggesting revenue and profits should accelerate as they progress throughout the year. The stock climbed nearly 25% this week and is up 95% year to date.

Next week brings earnings reports from Amazon on Tuesday and Apple on Thursday. Investors will listen for comments regarding capital spending and AI initiatives, in addition to changes they are seeing to consumer spending. On Wednesday the Federal Reserve will meet, but is not expected to adjust rates this month. And then Friday we will hear the employment report for April. Nonfarm payrolls are expected to expand by 210,000 jobs, down from over 300,000 in March.

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