There were four key things that drove sentiment last week:
The Yen weakened sharply but briefly on Monday intra-day to ¥159.96/US$1.00, a record low;
The FOMC meeting came and went with only the slightest of changes to monetary policy;
AMZN and AAPL reported earnings, the former of which beat across the board and the latter of which barely beat; and
A (slightly) weaker-than-expected US jobs report for April was released Friday before the NY open.
In spite – or perhaps because of – the confluence of economic news and earnings, risk markets took on a more constructive tone mid-week and performed well. What was unusual is the bond market also got some wind behind its sails for a change, thanks to a weaker-than-expected US jobs report for April released on Friday before the open. Tables for the indices and assets tracked by EMC are in “The Tables” section below.
KEY SENITMENT DRIVERS LAST WEEK
The Yen
With the Yen falling to a record intra-day low of nearly ¥160/US$1.00 on Monday, a lot of attention was focused on Asia to start the week. However, Monday was a holiday in Japan, and liquidity was thin anyway, leading to a wild ride for the Yen. Some pundits place Yen weakness at the feet of the mighty US Dollar, while others say it’s the overly dovish Bank of Japan. The reality is likely somewhere in between, as it often is with currency pairings. A weak Yen probably creates much less consternation in the US and Europe than in China, as the media pointed out during this sharp but short period of extreme Yen weakness. However, whether it was market forces or intervention – probably the latter early in the week that provided momentum – the Yen surged to its best week in many, chalking up a weekly gain of 3.5% and relegating Monday’s record intraday low to a distant memory. Even so, the Yen’s close Friday at ¥152.95/US$1.00 remains extraordinarily weak, and I suspect the BoJ will need to toughen its spine at some point. The knock-on effects into Japanese equities will need to be considered, because at some point, the Yen/Dollar will converge back towards its historical average of around ¥111/US$1.00 (since 1996, according to my calcs).
FOMC meeting
The FOMC decision was largely as expected as far as the Fed Funds rate, which remained at its current level. The Fed did decide to reduce the amount of QT by cutting the run-off of US Treasuries to $25bln/month (from $60bln/month), providing some relief perhaps to intermediate and long-term bonds. Probably what mattered most is Mr Powell’s comments at the post-FOMC press conference, in which he said that the next move by the Fed was very unlikely to be an increase in the Federal Funds rate. While always unlikely, the noise around the likelihood of such an increase had been building in the press and financial circles, but Mr Powell’s comments put this firmly to bed, providing some relief to investors. (The jobs report on Friday provided further credence that a further rate hike is unlikely.) You can find the official FOMC release here, and Mr Powell’s video press conference afterwards here.
Earnings, including AMZN and AAPL
Last week was the biggest week for S&P 500 company earnings this cycle, and there were plenty of fireworks. Most attention was on Mag 7 tech giants Amazon and Apple, both of which served up good enough earnings to push their stocks higher WoW. (I released tables for both companies for context prior to their earnings releases on X (Twitter), in case you follow me on that site.)
Amazon: #AMZN released its earnings on Tuesday after the close. The company beat on the top and bottom-lines, decisively on the bottom line delivering $0.98/sh vs analysts’ consensus expectations of $0.83/sh. More importantly though and unlike Apple, the company was truly firing on all cylinders, with both cloud (AWS) and advertising revenues delivering solid growth. Year-over-year, revenues increased 13% and operating profit more than tripled. The company will continue to buy back stock, too, but it did not follow META and GOOG by initiating a dividend. The shares closed up 2.3% the day following its earnings release and were up 3.7% for the week.
Apple: #AAPL released its earnings on Thursday after the close. The company ever-so-slightly beat consensus top-line ($9.75 bln vs $90.01 bln) and bottom-line ($1.53/sh vs $1.50/sh) figures, but this – along with an increase in its dividend (+4%) and a new stock repurchase authorisation program of up to $110 billion (+$20 bln) – was enough to cheer investors. Of course, CEO Tim Cook was bursting with optimism regarding new products (and improvements to existing ones) on the post-release earnings call, adding a positive vibe to a quarter that actually was not good at all if the direction of travel matters, both in terms of actual results (sales down 4% YoY) and product volume sales (iPhone sales down 10% YoY). Mashing this all together, investors bid up the stock to $187/sh at its intraday high, before it settled back to close Friday at $183.38/sh (+8.3% WoW), which reduced the shares’ YtD loss to 4.6%.
My assessment is that AMZN delivered a significantly more solid set of results than AAPL, although investors pushed up AAPL shares much more, perhaps a bit of a relief rally in that AAPL’s results could have been much worse. It’s strange that the stocks of the two Mag 7 companies that have delivered the worst results this cycle – #TSLA and AAPL – have rallied the most, while the company that delivered the best results –#META – saw its shares hammered badly. It’s all about expectations and outlook, and in this department, it’s hard to out-cheer the rhetoric coming from Elon Musk and Tim Cook after their companies’ mediocre quarters.
As far as S&P earnings generally, check out “The Week in Earnings” for the week ended May 3, 2024 here (source LSEG I/B/E/S).
US jobs report for April
The US jobs report for April was released before the NY open on Friday, which you can find here. The report suggested a cooling of the US jobs market, with new jobs added during the month coming in well below the level expected by economists, and the unemployment rate increasing to 3.9%. This cheered everyone:
The Fed must have been most relieved since a slower jobs market should cascade through to less pressure on prices;
Bond investors were relieved because slower jobs, and potentially slowing inflation, takes pressure off the Fed, improving the likelihood of a faster series of rate cuts; and
Equity investors cheered because the bias shifted towards lower interest rates sooner.
Relief to bond investors makes perfect sense, but I never quite grasp the euphoria in the stock market when there are signals that the US economy is slowing. Nonetheless, yields in the US Treasury bond market fell after spiking mid-week, and US equities took off like a rocket. The yield on the 2-year US Treasury closed above 5% on Tuesday for the first time since early November, then proceeded to fall the rest of the week, closing the week yielding 4.81%. The yield on the10-year US Treasury closed at 4.50%, its lowest level since early April. US stocks closed the week higher after also slumping mid-week, with the small-cap Russell 2000 leading the charge.
MY TRADES LAST WEEK
It was a wild week, and I mostly watched. But I did sell a bit of AAPL after the shares gapped up post-earnings on Friday to raise some liquidity, and I did the same with BRK.B, my largest portfolio holding. I added some NVO too. All were relatively small trades involving existing positions.
THE TABLES
The tables below provide detail across various global and US equity indices, the US Treasury market, corporate bonds and various other asset classes.
Global equities
US equities
US Treasuries
Corporate bonds (credit)
Safe haven and other assets
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