Stocks Higher, Inflation Data On Deck, Buffett Big On Apple, PacWest Rally, Debt Ceiling ‘Catastrophe’ – 5 Things To Know

Five things you need to know before the market opens on Monday May 8:

1. — Stock Futures Edge Higher As Recession Concerns Fade

U.S. equity futures bumped higher Monday, after snapping their longest losing streak since February to close out last week’s slump, as investors begin to look past the first quarter earnings season and focus on the health of both the domestic economy and its banking system.

A firm recovery in regional banking shares could dispel concerns for contagion following Federal Reserve data last week showing a decline in emergency borrowing, although investors will likely focus on readings from the Fed’s first quarter¬†Senior Loan Officer Opinion Survey of credit conditions, due over the coming days, to assess the impact of regional bank failures on overall credit supply.¬†

Still, with around 419 S&P 500 companies reporting first quarter earnings to date, collective profits look set to fall by around 0.7% from last year to $438.1 billion, a modestly better outcome than was forecast at the beginning of the quarter. 

Around 77.1% of reporting companies have topped Street earnings forecasts, according to Refinitiv data, besting both the prior four quarter average of 73.5% and the long-term average of 66.3%.

That strength, coupled with a resilient job market — which added another 253,000 new positions last month, according to Labor Department data published Friday — and still-solid consumer spending, has lifted the Atlanta Fed’s running estimate of U.S. GDP to 2.7%.

That may not be strong enough to erase any near-term recession fears, and indeed markets continue to price in as much as a full point of rate cuts between now and the end of the year, but with stocks trading at a forward price-to-earnings multiple of 17.9, and the Federal Reserve suggesting its rate hike cycle may have come to an end, equity markets could benefit from a traditional ‘buy the last rate hike’ rally.

In other markets, benchmark 2-year Treasury note yields were little-changed in overnight trading at 3.935%, while 10-year notes were pegged at 3.435%. The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.01% lower at 101.215.

Oil prices were firmly higher in overnight trading, with WTI crude futures for June delivery rising $1.36 to $72.70 per barrel as recession fears faded, although a pullback in U.S. Gulf drilling capacity, as well as CFTC data showing a decline in speculative long positions, suggests the rally may not last. 

Heading into the start of the trading day on Wall Street, futures tied to the the S&P 500 were priced for a 4 point opening bell gain while those linked to the Dow Jones Industrial Average are set for a 50 point advance. The tech-focused Nasdaq was marked 10 points lower.

In Europe, the region-wide Stoxx 600 was marked 0.28% higher in early Frankfurt trading while London’s FTSE 100 gained 0.98% in London.

Overnight in Asia, the region-side MSCI ex-Japan index was marked 0.98% higher into the close of trading while the Nikkei 225 returned from its May holidays to close 0.71% lower at 28,949.88 points.

2. — Week Ahead: April CPI Data, Disney Earnings In Focus

Inflation data will take center-stage this week as the first quarter earnings season draws to a close and investors growing increasingly concerned over the fate of U.S. economic growth into the summer months.

The Federal Reserve’s suggestion last week that it has likely come to the end of its relentless rate hike cycle — the most aggressive in four decades — has investors now closely tracking the major data points between now and next month’s policy meeting in Washington.

Wednesday’s April CPI reading could provide one of the most important indicators of the next Fed move, particularly following last week’s stronger-than-expected jobs report, which included a surprise increase in average hourly earnings.

Analysts expect headline inflation to have held at 5% over the month of April, with only modestly easing pressures in the closely-tracked core reading, when the data is published at 8:30 am Eastern time.

A potentially important auction of $35 billion in 10-year notes will follow later that day, with factory gate inflation figures, alongside weekly jobless claims data, expected at 8:30 am on Thursday.

Walt Disney  (DIS) РGet Free Report, highlights a quiet week on the corporate earnings front, with only 32 S&P 500 companies slated to report March quarter results between now and Friday. Disney will post its second quarter earnings after the close on Wednesday. PayPal  (PYPL) РGet Free Report, Tyson Foods  (TSN) РGet Free Report, Fox Corp.  (FOXA) РGet Free Report and Airbnb  (ABNB) РGet Free Report are also slated to post March quarter figures this week.

3. — Apple Gets Buffett Endorsement After Q2 Earnings Boost

Apple  (AAPL) РGet Free Report shares edged lower in pre-market trading following an endorsement for the tech giant from billionaire investor Warren Buffett. 

Buffett told the annual meeting of Berkshire Hathaway¬† (BRK.A) – Get Free Report¬†shareholders Saturday that he would be happy to add to his 5.6% stake in Apple — valued at around $159 billion and around a third of the Berkshire portfolio — and called the iPhone maker not only “different than the other businesses we own” but also “a better business.”

“We put a fair amount of money in Apple … and the company has a position with consumers who pay $1,500 for a phone and $35,000 for a second car. But they’d rather give up the second car than the iPhone. It’s an extraordinary business.”

Last week, Apple shares surged to the highest levels in more than a year after it topped Street forecasts for its March quarter earnings, thanks to a surprise¬†1.5% gain in iPhone revenues and record sales from a host of emerging markets, and said current quarter sales would only slip modestly from last year’s levels.

Berkshire itself posted a 13% jump in operating profit for the first quarter, Buffett’s preferred metric, which came it at $8.07 billion.¬†¬†

Apple shares were marked 0.11% lower in pre-market trading to indicate an opening bell price of $173.38 each..

4. — PacWest Extends Rally On Dividend Cut As Regional Banks Recover

PacWest Bancorp.  (PACW) РGet Free Report extended gains in pre-market trading after the struggling Los Angeles-based lender slashed its quarterly dividend in order to preserve cash and bolster its balance sheet.

In a late Friday update, PacWest said it would payout a dividend of one penny per common share, down from a prior level of 25 cents, citing¬†current economic uncertainty, recent volatility in the banking sector and potential changes in regulatory capital requirements.”

“Our business remains fundamentally sound, and we will continue with our strategy to focus on our relationship-based community banking model,‚ÄĚ said CEO Paul Taylor.

Regional bank stocks have rallied hard since the Fed published data late Thursday indicating that most of the lending from its emergency facilities was directed towards First Republic prior to its sale to JPMorgan Chase late last month.  

PacWest shares, which soared by 81.7% on Friday, were marked another 13.5% higher in pre-market trading, indicating an opening bell price of $6.54 each.

5. — Yellen Warns On Debt Ceiling ‘Catastrophe’ Amid Biden, GOP Standoff

Treasury Secretary Janet Yellen issued another stark warning over the U.S. debt ceiling Sunday, suggesting “an economic and financial catastrophe” would follow if lawmakers failed to reach an agreement on its extension.

Speaking with ABC’s ‘This Week’ program, Yellen said that the fate of the $31.4 trillion debt limit, which was breached earlier this year, lies in the hands of Congress, warning that any attempt by President Joe Biden to suspend it would trigger a “constitutional crisis”.

“It’s Congress’s job to do this,” Yellen said. “If they fail to do it, we will have an economic and financial catastrophe that will be of our own making …¬†we should not get to the point where we need to consider whether the President can go on issuing debt.”

President Biden is slated to meet with Republican House Speaker Kevin McCarthy, Republican Senate Minority Leader Mitch McConnell and a host of Democratic lawmakers at the White House on Tuesday to find a way through the impasse. 

Republicans passed initiative last month that would tie any increase in the debt ceiling to billions in spending cuts, a view echoed by 43 Senate Republicans in a letter to Majority Leader Chuck Schumer over the weekend. 

Yellen warned last week that the U.S. will run out of money to pay its obligations — as well as fund existing spending commitments — as early as June 1.

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