By Lewis Krauskopf
NEW YORK, May 1 (Reuters) - Investors will look for another batch of earnings reports and fresh employment data to drive a resilient U.S. stocks rally higher next week, in the face of spiking oil prices and a more hawkish Federal Reserve.
Major U.S. stock indexes were at record-high levels on Thursday, following a sharp month-long rebound from concerns about economic fallout from the Middle East war. A broadly strong season for corporate profits is underpinning bullishness for U.S. equities
and countering other market headwinds.
The benchmark S&P 500 and the technology-heavy Nasdaq Composite both ended April on Thursday with their biggest monthly gains since 2020. The S&P 500 rose more than 10% for April, while the Nasdaq jumped over 15%.
"We have these fast-rising profits on one side, and then on the other, we have upward pressures on oil prices and bond yields," said Angelo Kourkafas, senior global investment strategist at Edward Jones. "We've rallied a lot in April, so potentially we may enter some period of consolidation as this pull and push is playing out."
Stocks this week largely shrugged off a renewed surge in oil prices with benchmark Brent crude topping $120 a barrel and hitting a four-year high before pulling back. Energy markets were poised to swing on developments in the two-month U.S.-Israeli war with Iran, which has choked off a major supply of oil. While a ceasefire agreement helped catalyze the stock market's rebound, continued tensions in the Middle East were poised to keep investors on edge.
"With each passing day, the economic risk grows," said Jeff Buchbinder, chief equity strategist for LPL Financial. "If we're sitting here in a month or two, and Brent crude is still over $120, and we've still got a blockade and maybe bombs are still falling, that is a very different scenario than what we're looking at right now."
ANOTHER BIG EARNINGS WEEK
More than 100 companies in the S&P 500 are set to post results next week, with markets digesting the heart of the reporting season. Overall S&P 500 earnings as of Thursday were on track to climb more than 20% in the first quarter from a year ago, according to Tajinder Dhillon, head of earnings and equity research at LSEG Data & Analytics.
This week, megacap companies investing in artificial-intelligence infrastructure reported results that yielded mixed market reactions. Shares of Alphabet jumped on Thursday after the Google parent showed blowout cloud-computing growth, while shares of Microsoft and Meta Platforms slumped after less stellar results.
Data analytics firm Palantir, entertainment company Walt Disney and restaurant chain McDonald's are among the high-profile companies due to report next week.
Results from chipmaker Advanced Micro Devices will also be in focus, given recent eye-popping gains for its shares as well as those of other semiconductor companies, said Michael O'Rourke, chief market strategist at JonesTrading. Over the past month, AMD shares are up some 80% and the Philadelphia SE Semiconductor index is up over 45%.
"This is the group that is dominating the tape and dominating the market," O'Rourke said. "Any datapoints you get are going to be really important."
JOBS IN FOCUS AS RATE-CUT HOPES DIM
The payrolls report for April, due on May 8, is expected to show growth of 73,000 jobs, according to economists polled by Reuters. That would be a step down from the 178,000 added in March, but an improvement over the sharp employment decline in February.
"It's a slow job market, but the job market is still hanging in there," Buchbinder said.
Data on Thursday showed U.S. economic growth picked up in the first quarter, as the AI spending boom helped to lift business investment in equipment.
The fresh jobs data will follow signs that equity-friendly interest rate cuts may be harder to come by this year. This week's Federal Reserve meeting revealed a surprisingly divided U.S. central bank, as three board members objected to language in the Fed's policy statement they felt did not take adequate account of inflation risks that might require a rate hike.
That hawkish turn, combined with surging oil prices, pushed benchmark U.S. Treasury yields to one-month highs. The yield on the widely followed 10-year Treasury was last around 4.4%. Higher yields could pose problems for equities, including translating into higher borrowing costs for consumers and businesses.
"The 10-year above 4.5% will certainly catch more investors' attention," Kourkafas said. "At that point, investors might start rethinking valuations and get a little more worried."
(Reporting by Lewis Krauskopf, editing by Colin Barr and Rod Nickel)
