Happy Friday!
Mixed economic data shows the US economy slowing and inflation remains stubbornly elevated. Q1 earnings are generally positive, but company results vary widely. AI dominance — Microsoft passes Apple as the most valuable company and Alphabet (Google) declares its first ever dividend. Venice awash in tourists – will a user fee stem the tide? Country is cool and Beyoncé is No. 1!
#1 – Weekly Market Recap – Despite worrisome economic releases this week, US stock markets appear poised to end the week up after strong earnings results from Microsoft and Alphabet (Google). If the morning’s gains hold through the market close today, stock indices will break a three-week losing streak.
Markets were volatile this week with a mix of unsettling economic data offset by positive company earnings releases. Although Meta’s disappointing earnings on Wednesday put a cloud over the market, Microsoft and Alphabet’s progress with AI brought rays of sunshine to investors to end the week.
Next week could be equally exciting (aka volatile) with an additional 33% of the S&P 500 companies reporting earnings next week.
#2 – Concerning Economic Data –Several important economic updates were released this week – with worrisome results. Three of the most important releases for investors were Q1 GDP, consumer spending and inflation.
On Wednesday, Q1 2024 GDP (a broad measure of goods and services produced in the US) was reported at +1.6%, well below the +2.4% estimate. The lower GDP growth was the lowest quarterly growth since Q2 2022 and caused concern among investors about a slowing US economy.
Real consumption increased at a +2.5% rate in the first quarter, down from a +3.3% rise in Q4 and below analysts’ estimates for a +3% increase. A reduction in personal consumption was viewed as further evidence that the US consumer is slowing down.
Core consumer prices rose at a 3.7% annualized rate in Q1, indicating a reacceleration of inflationary pressures.
Combined, the reports were troubling for investors. David Donabedian, CIO of COBC Private Wealth US, summarized investor sentiment succinctly, “This was a worst of both worlds report – slower than expected growth, higher than expected inflation. We are not far from all rate cuts being backed out of investor expectations. It forces Powell into a hawkish tone for next week’s meeting.”
This morning’s personal consumption expenditures price index (PCE), a preferred measure of inflation for the Fed, also came in higher than expected, rising +2.8% from a year ago. Although the number was only slightly above the +2.7% estimate, it was further confirmation that inflation remains stubbornly elevated, and appears to be anchored well above the Federal Reserve’s 2% target.
Source: CNBC
Source: CNBC
#3 – Earnings Update – It has been a busy week of earnings reports with 159 S&P 500 companies reporting earnings this week — with varied results.
Overall, companies grew earnings faster in Q1 than expected. According to data released by LSEG yesterday, Q1 earnings growth is expected to rise +4.3% for the quarter, up from the previous 3.3% estimate. Out of the 190 companies that have reported earnings so far this quarter, approximately 78% have exceeded analysts’ expectations.
But the results have varied widely. On Wednesday, Meta Platforms (formerly Facebook), disappointed investors by announcing higher expenses and weaker revenue projections. Meta stock fell -10.5% and wiped out $132 billion of market value. While this was a stunning amount to lose, it is only about ½ of the market value lost in February 2022 when Meta’s stock declined $252 billion after reporting disappointing earnings.
On a positive note, two technology giants, Microsoft and Alphabet (formerly Google), reported results that exceeded expectations and investors are rewarding the stock in early trading this morning.
Microsoft’s strong performance was attributed to the surge in Artificial Intelligence (AI), resulting in its highest quarterly profit growth in over two years. Microsoft’s success in AI has propelled it to surpass Apple as the world’s most valuable company over a $3 trillion market value (Apple’s current valuation is $2.6 trillion).
Alphabet (GOOGL) is trading up approximately 10% this morning following a Q1 earnings release that beat both earnings and revenue expectations. Like Microsoft, Alphabet’s results indicate that they are making significant progress in the race for AI dominance. Alphabet also announced that they will be starting to pay a dividend for the first time.
Source: Yahoo Finance
#4 – Venice Awash in Tourists – Venice, the picturesque Italian city known for its winding canals, beautiful bridges and striking architecture, launched a pilot program this week charging tourists a 5-euro (~$5.35) entry fee to visit the fragile lagoon city. Authorities hope the fee will discourage visitors from arriving on peak travel days and make the city more livable for its residents.
There are 29 dates through July that the entry fee will be in effect. The charge only applies to people arriving in the city between 8:30am and 4pm, outside those hours, city access is free. Tourists arriving at the main train station are funneled through a separate entrance for visitors. Once there, stewards are on hand to guide any visitors needing assistance in downloading the QR code to pay the fee.
By charging a fee to enter the city, the tourism department is hoping to create a more sustainable tourism industry and restore balance to a city where narrow streets and water taxis are often clogged with tourists.
Not all residents are sold on the visitor fee. Hundreds of Venetians protested the program, saying a resurgence in the resident population is needed with greater access to housing and services. The population of the historic city center has shrunk to roughly 53,000, down 30% from a generation ago. Residents say limiting short-term rentals, popular with tourists, and making housing more available, will attract families back from the mainland.
The city is strained when the number of day-trippers reaches 30,000 to 40,000, says Simone Venturini, the city’s top tourism official. On peak days, local police set up one-way pedestrian traffic to keep the crowds moving.
“We need to find a new balance between the tourists and the residents,” said Venturini. “We need to safeguard the spaces of the residents, of course, and we need to discourage the arrival of day-trippers on some particular days.”
Venice may not be the only city charging an entrance fee. Other cities suffering from mass tourism, such as Barcelona and Amsterdam, are interested and watching closely to see how the pilot program in Venice fares.
#5 – Country is Cool (Again) – Country music is undergoing a huge resurgence this year and the genre is seemingly becoming more inclusive as well.
While country music has its roots in the rural South and Western US, it has become much more mainstream in recent years with an increasing number of new fans and artists. In 2023 country music was one of the fastest growing streaming genres in the US, according to industry data firm Luminate. There were over 20 billion country on-demand music streams in 2023, a 23% increase over 2022.
Damon Whiteside, CEO of the Academy of Country Music, believes one reason country music is seeing a resurgence and becoming more inclusive is the genre’s focus on relatable songwriting and amazing musicianship. “The incredible stories that country songs have been telling for decades are what makes the genre so relatable to every type of listener and have helped country music continue to reach and engage broad audiences all over the world,” he told Newsweek.
Earlier this year, pop superstars Beyoncé and Lana Del Rey, each revealed that they would be releasing country albums. In February, Beyoncé’s first single “Texas Hold ’Em”, off her “Cowboy Carter” album debuted at No. 1. The Grammy-winning artist became the first Black female artist to ever achieve a number-one country song.
At a pre-Grammy event, Del Ray reaffirmed there is a shift occurring in the music industry. “If you can’t already tell by our award winners and our performers, the music business is going country. We’re going country. It’s happening,” Del Rey said.
Source: Newsweek
Source: Billboard
Have a great weekend!
Denver & the DSGCA Team