Non-farm payrolls and the Federal Reserve interest rate decision are coming! Where is the market focus this week?

According to the Zhitong Finance and Economics APP, despite growing concerns that the Federal Reserve will maintain high interest rates for a longer period, the rebound in the tech stock earnings reports has led to a rebound in the US stock market. The Nasdaq Composite Index rose by over 4% last week, the S&P 500 Index rose by nearly 3%. Meanwhile, the Dow Jones Industrial Average rose by less than 1%.

In the upcoming week, the Federal Reserve interest rate decision, April non-farm payroll report, and earnings reports from major tech giants such as Apple (AAPL.US) and Amazon (AMZN.US) will test the recent optimism in the market.

Additionally, the latest data on job vacancies, service and manufacturing activities, and consumer confidence will also be released.

Companies releasing earnings reports this week include AMD (AMD.US), Coca-Cola (KO.US), Eli Lilly (LLY.US), McDonald's (MCD.US), Novo Nordisk (NVO.US), Starbucks (SBUX.US), and Super Micro Computer (SMCI.US).

Latest Federal Reserve Interest Rate Decision

The Federal Open Market Committee (FOMC) of the Federal Reserve will make its latest decision on interest rate policy early Thursday morning Beijing time, followed by a press conference by Fed Chair Powell. The market generally expects the Fed to keep interest rates unchanged.

Given that the market has lowered expectations of a rate cut, investors will closely watch how the Fed interprets recent higher-than-expected inflation data.

Matthew Luzzetti, Chief US Economist at Deutsche Bank, wrote in a research report last Friday, "The rise in the latest round of inflation data could trigger a more hawkish message at the May FOMC meeting. While we expect the committee to maintain a dovish bias, we also expect the statement and press conference to echo Chair Powell's view that firmer inflation data suggests it will take longer to gain confidence in a slowdown in inflation."

Since Powell publicly stated on April 16 that inflation will "take longer than expected" to reach the Fed's 2% target, the data on price increases has exceeded expectations. The core Personal Consumption Expenditures (PCE) index, which excludes food and energy costs and is closely watched by the Fed, grew by 2.8% year-on-year in March, higher than the expected 2.7% and equal to the annual growth rate in February.

According to the FedWatch tool from the Chicago Mercantile Exchange, after the data was released, investors now see only a 33% chance of a rate cut by the Fed in July, down from 83% a month ago Labor Market Overview

As the Federal Reserve promises to maintain interest rates at high levels until it is confident that inflation is declining, people continue to focus on the health of the labor market. Flexible data gives economists hope that despite high interest rates, the inflation rate can drop to 2% without causing the economy to fall into a recession.

According to compiled data, the employment report for April is expected to show that the US economy added 250,000 non-farm jobs, with the unemployment rate remaining at 3.8%. In March, the US economy added 303,000 jobs, while the unemployment rate dropped to 3.8%.

Furthermore, economists generally believe that there are no signs of cracks in the strong labor market.

Michael Gapen, chief US economist at Bank of America, wrote in his weekly report to clients last Friday: "We expect the recent momentum in the labor market to continue."

Continuous Growth in Performance of Large Tech Companies

So far, the market's response to the performance of large tech companies has been mixed. Meta (META.US) plans to make significant investments in the field of artificial intelligence, coupled with its second-quarter revenue guidance falling below expectations, which disappointed investors and led to a more than 10% drop in the stock price of this social media giant after announcing its financial results.

Google (GOOGL.US) turned out to be the winner last week: after the company announced a cash dividend plan of $0.20 per share, approved a $700 billion stock buyback plan, and reported better-than-expected performance, the company's stock price soared by over 10%. Last Friday, the company's market value also exceeded $2 trillion.

Ted Mortonson, technology sector strategist at Baird, believes that a key reason behind the different trends of these two major tech stocks is the "position game." Over the past year, Meta's stock price has soared, while Google's performance has not been as good.

This statement will be tested again in the coming week when Apple and Amazon will both report their performance. Due to increasing concerns about slowing demand, Apple's stock price has fallen by over 11% this year. Meanwhile, Amazon's gains this year have exceeded 18%, hovering near historic highs Overall Performance

In addition to large tech companies, the S&P 500 index will face the busiest two-week earnings reporting period this week. According to FactSet statistics, 46% of companies in the index have already announced their earnings for this quarter, with earnings per share expected to grow by 3.5%, slightly higher than the 3.2% expected before the start of the earnings season.

Overall, companies that exceed earnings per share and revenue expectations have seen a moderate stock price reaction, while those that fall below expectations have shown more negative stock performance than usual.

Strategists say that after a significant market rally earlier this year, companies seem to struggle to impress investors and drive significant market reactions.

Citigroup strategist Drew Pettit said, "You not only need (earnings, revenue) and (guidance) to meet or exceed expectations, but you also need to have confidence in the long-term trajectory of these companies."

Nevertheless, there is still a glimmer of hope in overall performance so far: profit margins are on the rise. The net profit margin for S&P 500 index component companies this quarter is expected to be 11.5%, higher than the 11.2% from the previous quarter and on par with the same period last year.

As pointed out by Keith Lerner, Chief Market Strategist at Truist, in January, a key question investors will face in 2024 is whether companies can maintain profit margins in the face of persistent inflation and high interest rates. Currently, the answer seems to be affirmative.