Global stocks were lower in early trading this week as investors digested first-quarter earnings reports ahead of key economic data later this week. The S&P 500 was down nearly 2% mid-week, while international stocks were down about 1%.
On the earnings front, first-quarter profits for technology giants Alphabet (Google) and Microsoft came in better than expected. Microsoft was up more than 7% in pre-market trading on Wednesday as the company recorded a strong increase in revenue from its Cloud business segment. In the banking sector, First Republic Bank reported deposits dropped 40% in the first quarter, adding to ongoing concerns about the overall banking sector. In aggregate, the markets are expecting shrinking profit margins to detract from relatively modest revenue growth, leading to lower earnings across the board.
On the economic front, focus this week will be on first-quarter Gross Domestic Product (GDP) due to be reported on Thursday, where the consensus is for the economy to have expanded at an annualized rate of 2.0% for the first quarter. In addition, personal income and outlays will be reported on Friday, which includes the PCE Price index, the Fed’s preferred measure of inflation. Each of these data points will serve as key inputs into the Federal Reserve’s policy meeting which concludes on May 3. For now, the markets are widely anticipating the central bank to take interest rates higher by another 25 basis points at the May meeting before pumping the brakes.
Source: GSAM, CNBC, JPMorgan
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