As investors eagerly await the conclusion of the U.S. Federal Reserve meeting, all eyes are on whether interest rate cuts are still on the table for this year. While it is unlikely that there will be any rate action, Federal Reserve Chair Jerome Powell’s comments about potential policy easing later in 2024 will be closely analyzed. The Fed’s initial projections of three rate cuts have been called into question due to stronger-than-expected inflation reports. This uncertainty has contributed to the rise in Treasury yields and a recent pullback in the stock market. The Fed futures market has adjusted its expectations for easing, with only 35 basis points now predicted compared to the initial 150 basis points at the beginning of the year.
In the tech sector, the focus is on the last of the “Magnificent Seven” megacaps, Amazon and Apple, as they prepare to report their earnings. While some of their peers have shown mixed performances, both Amazon and Apple face unique challenges. Apple’s shares have declined over 10% in 2024, with expectations of a decrease in first-quarter earnings following a drop in China smartphone shipments. Amazon’s cloud computing business will be closely monitored, along with its view on consumer spending. Despite this, Amazon’s shares have seen an 18% increase since the beginning of the year. The tech industry is also feeling the effects of regulation, with President Joe Biden recently signing legislation targeting TikTok‘s ownership.
After last month’s positive surprises in China’s manufacturing activity, April’s data will provide further insight into the progress of the economic recovery. China’s official PMI figures are set to be released on Tuesday, followed by the Caixin/S&P Global manufacturing PMI survey. Positive data could reignite optimism in China’s economy, particularly among investors. While global investment houses have expressed bullish sentiments towards Chinese stocks, concerns remain regarding the fluctuation of the yuan against a strengthening dollar, creating challenges for China’s export-driven economy.
Market focus will also be on the euro zone as inflation and economic growth data is set to be released. Analysts are anticipating potential implications for the European Central Bank, including a possible lowering of the deposit rate from its current record level. Economic growth in the euro zone is expected to be modest, with forecasts showing a 0.1% expansion in the first quarter. Inflation numbers for April could further influence the ECB’s decision-making process. The central bank is cautious about the impact of U.S. inflation rates and a strong dollar on the euro, leading to market expectations of ECB rate cuts.
As May approaches, investors may consider the traditional adage of “Sell in May and go away.” This strategy suggests that the best six-month period for stock returns is from November to April, while the leanest period is from May to October. Over the last 50 years, the S&P 500 has shown significant gains between November and April, compared to lower returns between May and October. However, this pattern has weakened in recent years, with diminishing performance differences between the two periods. Market participants will be keeping a close watch on whether this trend continues in the current economic climate.