New York morning trade, we are looking at the Dow soaring by triple digits, with Cisco as well as Nvidia leading the way higher.
Now the tech sector is roaring back, led by mega caps like Nvidia as well as Alphabet, and this bounce does come as Q1 earnings season shapes up to be an absolute blockbuster.
The S&P 500 is also on track for nearly 28% earnings growth, which is the highest rate in over 4 years.
Now 10 out of 11 sectors are growing that and that is proving.
This rally is not just about a few tech giants, but at the same time we're keeping an eye on inflation figures which ran hot and the Fed Reserve likely sidelined until December for now joining us to break down what's happening in the markets is Christine Short, Head of Research at Wall Street Horizon.
Christine, good morning.
Thank you so much for joining me.
Well we are looking at the Dow Jones Industrial Average soaring this morning that about that 50,000 level as you and I were talking about before we.
On air, but we're seeing a rally of Cisco shares up by 15%.
So giving all the moving parts, what do you make of earnings growth?
Yes, you're right, you said it.
The tech sector is really leading the rally this week, and yes, we've had some great earnings momentum like you mentioned, the highest growth rate for earnings per share we've seen in just a little over 4 years since Q4 2022.
We're about 90% of the way through the S&P 500 reports.
Growth of 27.7% on the bottom line and then more like 11% on the top line, so very robust growth like you said.
10 of 11 sectors are on the positive side of that.
Only healthcare is down just slightly year over year and then revenue, all 11 sectors are up year over year.
And then if you look at beat rates, 84% of those companies that have reported have beaten on the bottom line, 80% on the top line, and those are growth that's.
Rates we have not seen in the last 15 and 10 years, so better than the average that we've seen.
So certainly there's strength here in the earnings.
The guidance was pretty good.
CEOs seem pretty confident.
The one metric I'll mention, which is our proprietary late earnings report indicator, it measures the earnings dates and whether they're earlier or later than they have been in past years, and academic research shows it is an indicator of CEO confidence if you advance.
You report earlier than usual typically correlates highly with having good news to share, and we did see the the highest Leary report in the last three quarters.
So that means CEOs maybe are getting a little more cautious and you have to think about what's happened over the last quarter.
Obviously the war in Iran, oil prices rising in Q4 and Q1, we saw the lowest Leary readings ever, meaning that everyone was feeling really good, really confident about.
Grow in the short term.
So we're seeing that pick up a little and I have my eye on that and Christine you mentioned what's happening below the surface and of course we're counting down to video earnings that will be coming out later this month, but we are fresh off the retail sales figures, not to mention the hotter than expected producer prices at the wholesale level that came out yesterday.
So what do you make of the retail sales figure and how the American consumers. like you said, retail sales out this morning in April, they grew 0.5%.
That was slightly less than the expectation of 0.6% and certainly a lot lower than what we saw in March, 1.6%, that blockbuster number.
You know, a lot of this was driven by sales at convenience stores as gas was up over 15% in April.
But we're seeing consumers pull back in other areas as you would expect.
Yes, we're still being pushed higher by the higher income consumer, but Economists are starting to warn that April might be the last sort of good month because you can only have prices at the pump over 450.
That's a specific level, and we're at 453 I believe today.
You can only have them that high for so long before something starts to give the high income consumer can only sort of help out to a certain point and we might start to see things crumble.
We also do have that tax refund windfall that's in play right now as well.
A.
Funds are up 11% year over year, so folks are getting a little more of a boost from those tax refunds.
But how long can it continue?
We're not sure we're going to hear from the retailers like you said next week, and that's going to give us an indicator of what they're seeing right now.
We're, you know, we're several months into this war started February 28th.
How much longer can consumers hang in there and Christine, as you mentioned, oil prices do remain elevated right now.
We are looking at.
Holding at that $100 level and the longer that this uncertainty continues and the Strait of Hormuz remains effectively closed, we know this is going to affect Americans as well as consumers around the globe.
So when you mention retail, I do want to ask you about the subsector within the retailers that you're paying attention to and the best risk to reward ratio here.
Yes, so next week there's 3 kinds of buckets that are reporting we've got.
Discounters that would be Walmart and Target.
We've got the home improvement retailers, Home Depot and Lowe's, and then you've got the off-price retailers.
I would say, what am I looking at for best risk to reward?
Obviously the discounters.
Walmart in particular has been doing incredibly well in this environment.
60% of their revenue comes from groceries.
Those are necessities that people are very much focused on right now.
Target is coming back a little bit.
They have lowered prices on 5000 products that they say are frequently bought.
Items, so they are trying to compete there.
They just don't have the same grocery business that Walmart has, so it's going to be kind of hard for them to compete with them as closely.
But Walmart still remains the winner here and the off-price retailers, right.
TJ Maxx and Ross stores report next week.
Remember they were winners during the tariff wars because a lot of the items they get have already been levied, so they don't have to deal with that trickling down to their bottom line.
But also when consumers are looking for a bargain, they're going to these off-price.
So we've seen them do well as far as Home Depot and Lowe's.
It's been rough with them with how the housing market has been.
It's pretty much frozen, so that you know people aren't buying new homes.
They're not doing renovations.
They've said they're they're seeing customers putting off those bigger, large ticket purchases, those bigger projects.
So instead, both those names are focusing on pros, and they've had a little bit of success there.
But we'll have more of an idea next week when those kind of three buckets report and we'll see where the consumers' heads are.
And Christine, finally, before I let you go, two names that we're watching Cerebrus with their IPO today, as well as Nvidia ahead of their earnings.
So what are your expectations?
Nvidia, obviously expectations are always very high going into each quarter for them.
The latest generation of Blackwell chip, we know they're full stage production now, so that's not a question.
Demand has been very high.
Want to hear about how high it's been and then data center revenue that was really the blowout last quarter.
Record data center revenue year over year growth of 75%.
So we're going to see if that's continuing Cerberus, as you said, somewhat a competitor, but Nvidia has a competing product as well.
But Cerberus IPOing this morning 185 a share, higher than anyone. raising about $5.5 billion.
That's the biggest tech IPO we've really seen since Uber back in 2019, raising $8 billion.
So as you see, it's still very much an AI trade story here and we'll be interested to hear more from Nvidia next week.
Well, Christine, always great having you on the show.
Thank you so much for recovering so much ground today.
Appreciate your time and all of your insights.
Thank you so much.
Thank you so much Christine.
Take care.
