The Federal Reserve's monetary policy path remains uncertain, as markets have had to revise their expectations for three anticipated rate cuts following the hotter-than-expected March CPI report. Adding to the uncertainty, the latest PPI data arrived in line with expectations.
As markets grapple with the implications of this shifting economic landscape, attention is now turning to the upcoming first quarter earnings season. Investors are closely watching to see how corporate performance and outlooks will affect market sentiment, and whether earnings can serve as a catalyst to rally the markets.
Yahoo Finance's Josh Schafer breaks down the details.
For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.
SEANA SMITH: Well, they've kicked off a 2024 with a bang, but the latest inflation print is leaving investors questioning the Fed's path forward. We saw that reflected in yesterday's sell off following that hotter than expected CPI print. Well, now that we've got CPI and PPI behind us here, at least for this week, the next big topic and the next big test for the market is going to be first quarter earnings. JP Morgan, Wells Fargo, Citi all set to report before the bell tomorrow on Friday. Yahoo Finance's Josh Schafer is here to discuss. And Josh there's so much riding on earnings season right now.
Just in terms of the strategists who have come out saying that, hey, it doesn't matter whether or not the Fed actually cuts this year. What's going to be the main driver? What could keep this market momentum here to the upside is earnings. Are they going to live up to those expectations?
JOSH SCHAFER: The biggest earnings season since last earnings season, right Brett? And last earnings season was the biggest earnings season since the earnings season before. It always mattered.
SEANA SMITH: Because the narrative is the same.
JOSH SCHAFER: Yes. Exactly. The narrative is the same. And I think the focus here Seana has been, well, it's helpful, I think, to Zoom out and think about why we're talking so much about the Fed and interest rates. What we've been talking about is how higher interest rates are going to impact companies and hurt potentially earnings growth. And that is something that we've seen companies starting to work through over the last couple of quarters. We had earnings growth on a year over year basis for the last two quarters. And there, we're expecting to see a similar narrative play out again this quarter.
We're looking at 3.2% earnings growth here for the first quarter, that's according to consensus data grabbed by FactSet. And overall, I think the important thing to highlight here is that right now consensus does feel like earnings are in good shape. You're looking right now on your screen, who is supposed to lead earnings. That's showing us that the top 10 companies in the S&P 500, are expected to lead while the 490 other companies. So seven ish angle here are expected to trail.
And what that shows us is for overall, what we're looking at for this quarter, we're expecting big tech to do well again and big companies to do well. But the key is going to be what are the other 490 guide. Because that chart is supposed to change as we go later in the year. We were talking about this earlier this week. We were supposed to have a little bit of a catch up from this broadening rally. Do we see that in terms of guidance? Do we hear companies feeling comfortable with potentially higher rates for the rest of the year? Are they feeling comfortable with the rate of inflation right now.
And does that change their own projections for earnings moving out into the rest of 24? I think that's the risk and the key question going into the next couple of weeks.
BRAD SMITH: Yeah, it's interesting. And we were talking about yesterday, some of the FactSet data and what they were looking for in terms of the S&P 500 actual earnings growth rate in that 3.2% growth rate yesterday. One of the huge things that was what the actual catalyst? What the narrative is that many of these companies are expected to talk about? Because they don't have an AI lever to pull. They don't have a blockchain and I'm taking-- I'm dating us a little bit here. Dating, funny. But anyway taking us back a little bit year-- a few years there when they were all talking about that. What is the key word that many of them could use?
JOSH SCHAFER: Yeah, it's interesting. Bank of America was out this morning with their earnings preview Brad for the quarter and they think it's all about, they wrote, quote "it's all about demand now" they think it's starting to become a little bit more of a demand narrative. So again, I was talking about how higher rates impact margins. And the different levers that companies can pull there. Well, if we go back a year ago, a lot of what we were talking about was big tech was doing layoffs. Big tech was getting their balance sheet in better shape. Big tech was doing certain things to cut back. Well, now how is that sort of translating into more demand and when you just talked about AI, Brad.
How is AI driving more demand for some of these companies. Beyond NVIDIA. Who is it helping beyond NVIDIA and how is it growing their top line because at some point, growing top line is going to matter here rather than just being able to cut down and protect if we're staying in these higher rate in the higher rate environment.