Stocks Keep Fighting Higher as Inflation Slows and Earnings Beat Expectations

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Stocks kept fighting higher last month as inflation slowed and earnings beat estimates.

The S&P 500 rose 1.5 percent in April, its third gain in the first four months of the year. The index has returned to challenge its February high, and is still above falling trendlines from 2022’s bear market.

The consumer price index and producer price index were both lower than expected. Wage pressures faded as business service prices fell, potentially suggesting lower inflation. That, in turn, could potentially let the Federal Reserve stop raising interest rates after Wednesday’s meeting.

Meta Platforms (META) and Microsoft (MSFT) led a series of better-than-expected quarterly reports. Both companies had strong revenue on healthy demand for their services. Overall earnings for the S&P 500 were down about 3.7 percent through Friday, according to FactSet. That’s a sharp improvement from the 6.2 percent decline a week earlier.

Volatility has also collapsed. The S&P 500 fluctuated less than 3 percent between its low and high in April, its narrowest range since July 2019. The last time price action was so tight in 2017 was associated with a broader uptrend.

Last week could be additionally important to chart watchers because the index dove toward a weekly support level before rebounding sharply. That, combined with limited bullish sentiment, could indicate that few sellers remain in the market.

S&P 500, monthly chart, with custom study showing monthly low-high fluctuation.

Big Movers in April

Top Gainers in the S&P 500 Last Month
Chipotle Mexican Grille (CMG)+21%The burrito chain beat estimates as traffic accelerated and comparable sales surprised to the upside.
Universal Health Services (UHS)+18%The hospital chain beat estimates. It also benefited from improved sentiment toward health-care stocks.
Intuitive Surgical (ISRG)+18%The medical-device company jumped to its highest level in a year after earnings and revenue beat forecasts.
Baxter (BAX)+18%The provider of medical products beat estimates, recovering from a drop on weak guidance earlier in the year.
Eli Lilly LLY (LLY)+15%The pharmaceutical stock climbed to a new record high on optimism about its potential Alzheimer’s drug, which is undergoing late-stage trials.
Source: TradeStation Data
Top Decliners in the S&P 500 Last Month
First Republic Bank (FRC)-75%The regional lender, already bruised from March’s bank failures, fell after losing deposits and attempting to unload up to $100 billion of assets.
Catalent (CTLT)-24%The drug manufacturer’s finance chief resigned after manufacturing challenges hurt profits. The news spurred worries that Danaher (DHR) will abandon a planned acquisition of the company.
Enphase Energy (ENPH)-22%The solar-energy stock issued weak revenue and margin guidance as demand slowed.
Tesla (TSLA)-21%The electric-car maker missed forecasts as CEO Elon Musk cut prices and reduced profitability to gain long-term market share.
Dish Network (DISH)-20%Worries about subscriber losses continued to plague the debt-laden media company.
Source: TradeStation Data

Sector Watch

Consumer Staples+3.7%
Communications+3.3%
Financials+3.2%
Health Care+3.1%
Energy+2.8%
Utilities+1.9%
S&P 500+1.5%
Real Estate+1%
Technology-0.1%
Materials-0.1%
Consumer Discretionary-1.1%
Industrials-1.2%
Source: TradeStation Data

Key Economic Events in April

Below are some key economic events from last month.

  • Unemployment Rises as Labor Pressures Ease: Job and wage growth in March matched estimates. Unemployment rose more than expected as Americans returned to the labor force. It suggested inflationary pressures may have peaked. (4/7)
  • Inflation Data Lower Than Expected: Consumer and wholesale prices rose less than expected in March. Drops in the cost of energy and services helped drive the slowdown. (4/12 & 4/13)
  • Retail Sales Fall More than Expected: Retail sales fell 1 percent in March, more than twice the forecast decline. Auto-related weakness led the drop, along with building materials and electronics. The news spurred worries about a potential recession. (4/14)
  • Are Leading Indicators Signaling a Recession?: Leading economic indicators fell 1.2 percent in March, triple the decline projected by economists. The reading was the lowest since November 2020 and may signal a recession is coming, according to the Conference Board. (4/20)

What Experts Are Saying

Below are some noteworthy commentaries.

  • Inflation is going to “drop hard” because rents are falling, according to Starwood Capital CEO Barry Sternlicht. The billionaire real estate investor blamed lags in government data and predicted the slowdown will appear in headline inflation this summer. Speaking on CNBC, he added the economy may enter a “serious recession.” (4/4)
  • Commercial real estate faces a double threat of office vacancies and higher interest rates, according to Morgan Stanley. More than half of commercial mortgages will need to be refinanced with interest rates about 4 percentage points higher. The investment bank added values may decline as much as 40 percent, more than the Great Financial Crisis. (4/4)
  • The S&P 500 could rally more than 10 percent to 4,625 this year, according to Piper Sandler technician Craig Johnson. He said bearish trendlines have been violated and added that bearish sentiment is widespread. (4/12)
  • A record 69 percent of the U.S. public has a negative view about the economy, according to a poll by CNBC. Less than one-quarter viewed stocks as an attractive investment. Inflation was the biggest worry. (4/18)
  • Stocks could have a “summer rip” following a May pullback, according to Bank of America analyst Stephen Suttmeier. He cited falling volatility and potentially bullish divergence on the Dow Jones Transportation Average. (4/25)

Popular Futures Contracts in April

ProductCurrent
Month
ExpirationNext
Month
1-Mon%
S&P 500 E-Mini (@ES)ESM23 (June)6/16/23ESU23+1.3%
Nasdaq-100 E-Mini (@NQ)NQM23 (June)6/16/23NQU23+0.2%
Dow Jones E-Mini (@YM)YMM23 (June)6/16/23YMU23+2.2%
Russell 2000 E-Mini (@RTY)RTYM23 (June)6/16/23RTYU23-2.1%
Source: TradeStation Data

Newsworthy Events This Month

DateEventWhat to Watch For
Wed 5/3Federal Reserve meetingInterest-rate statement at 2pm E.T., followed by press conference 30 minutes later.
Fri 5/5Non-farm payrollsWill job growth weaken? Will unemployment and wages indicate slower inflation?
Wed 5/10Consumer price indexWill inflation, especially shelter costs, slow?
Tue 5/16Retail salesWill consumer activity confirm recessionary fears?
Wed 5/24Fed minutesMinutes from the last meeting may provide clues about policymakers’ interest-rate plans.

Security futures are not suitable for all investors. To obtain a copy of the security futures risk disclosure statement Investment and Trading Disclosures Booklet – Futures.

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