Stocks settled into a more reasonable trading range on Tuesday after a volatile day on Monday. The S&P 500 and Nasdaq Composite were slightly down, and volatility contracted by 4% after a 12% jump on Monday. The focus has been on interest rates, with stronger economic data pushing back expectations for rate cuts until at least the second half of the year. Interest rate cuts are typically intended to stimulate a weakening economy by spurring borrowing, spending, job growth, and overall demand in the economy. Tech companies, particularly growth companies, are sensitive to changes in interest rates, with lower rates generally being beneficial to the sector. However, rates are currently making noise, especially in shorter duration maturities, with the 2-year note briefly breaking above 5% on Tuesday.
United Airlines reported strong first-quarter numbers, exceeding expectations and leading to a nearly 5% increase in premarket trading. Adidas also reported better than expected earnings and raised guidance, resulting in a 3% increase in shares. On the flip side, luxury apparel maker LVMH reported a decrease in revenues, causing shares to drop around 5% in premarket trading. The upcoming earnings season is highlighted by companies like Alphabet, Meta, Microsoft, and Nvidia. However, tech sector watchers will get a preview tomorrow when Netflix reports after the close. Netflix is expected to have a move of nearly 10% based on Tuesday’s closing price.
The significance of earnings season has been emphasized due to the lack of potential stimulus from interest rate cuts. First-quarter earnings not only reflect year-over-year growth but also provide insight into full-year outlooks. The market will be closely watching how companies perform during this earnings season to justify the gains made so far this year. Netflix’s earnings report tomorrow will serve as a test for the market’s sensitivity to earnings reports. The market may continue to trade sideways as it waits for corporate news to determine its next direction, highlighting the importance of sticking with long-term investing plans and objectives. This content from tastytrade, Inc. is for educational purposes only and is not intended to be trading or investment advice.
Overall, the shift in expectations for interest rate cuts, strong economic data, and upcoming earnings reports are driving market sentiment. Investors are closely watching how companies perform during this earnings season, particularly in the tech sector where rates are making some noise. The focus on earnings reports is heightened due to the lack of potential stimulus from interest rate cuts. As the market continues to trade sideways, it is important for investors to stick with their long-term investing plans and objectives. Tomorrow’s earnings report from Netflix will provide insights into the market’s sensitivity to earnings and may influence future trading decisions.
