This morning was rather light on economic news, with the only report of significance before the opening bell coming from the Labor Department. At 8:30 A.M. (EDT), we learned that initial jobless claims for the week ending April 13^th totaled 212,000. That figure matched the previous week’s revised tally and is still indicative of a tight labor market. Elsewhere, the Federal Reserve Bank of Philadelphia   reported that manufacturing activity in the greater Philadelphia area rose more 15% last month, but also showed a sharp increase in the prices paid component. A half-hour into today’s trading session, we will get the latest reading on existing home sales from the National Association of Realtors. The equity futures, which were modestly higher heading into the economic releases, are still indicating a positive opening when trading kicks off stateside. The Dow Jones Industrial Average has fallen in seven of the last eight trading sessions.

Driving today’s premarket action were a partial pullback in Treasury market yields after a surge earlier this week, and some earnings news from Corporate America. In general, with growing uncertainty about when the Federal Reserve may pivot on the monetary policy front, we think those companies that fail to meet expectations will feel the wrath of Wall Street. Conversely, those that meet or exceed prognostications may find some support in a market where volatility has picked up. Given this backdrop, we think investors should be looking at the stocks of high-quality companies that have a history of delivering steady earnings growth.

Since the close of trading yesterday, we received some positive earnings news. Of note, Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest chipmaker and a major supplier of processing chips for Apple (AAPL) and NVIDIA (NVDA), reported a 9% increase in first-quarter net profit, boosted by strong demand for advanced chips.  It also forecasted that second-quarter sales may rise as much as 30%, fueled by a groundswell of demand for semiconductors used in artificial intelligence (AI) applications. TSMC’s results, which are seen as a bellwether for the chip industry, showed just how strong the demand for chips was during the first quarter of 2024. Elsewhere, D.R. Horton (DHI), the nation’s largest homebuilder, reported March-quarter earnings per share of $3.52, which came in well above the prior-year tally of $2.73 and the Wall Street consensus of $3.06. The homebuilder also now expects full-year revenue in the range of $36.7 billion to $37.7 billion, versus its prior forecast of $36.0 billion to $37.3 billion. The results of these two quarterly releases are noteworthy, given the recent struggles of the technology and real estate sectors amid the rise in Treasury yields and resultant borrowing costs.

The recent spike in market volatility has been fueled by some disappointing data on inflation, including increases in the pace of consumer and producer (wholesale) price growth during the month of March. The hotter-than-expected inflation data brought increased sentiment that a pivot by the Federal Reserve on the interest-rate front will not occur until later this year, if at all in 2024. This week at a central banking forum, Federal Reserve Chairman Jerome Powell said the U.S. economy has not seen inflation come back to the central bank’s goal, pointing to the further unlikelihood that interest-rate cuts are in the offing in the short term. On the positive side from the equity market’s perspective, Mr. Powell did not say that the federal funds rate will need to go higher. Nevertheless, the recent jump in Treasury yields (the rate on the 10-year Note rose to its highest level earlier this week since mid-November) has hurt stocks, particularly those of the interest-rate sensitive small-cap companies and the higher-growth entities. In particular, the technology sector has been punished by the specter of higher borrowing costs. Yesterday the semiconductor sector sold off on weaker-than-expected results from ASML Holdings NV (ASML). The semiconductor equipment maker said that orders missed expectations last quarter. As mentioned above, this news is offset by the good results from the much-larger Taiwan Semi.

Later this morning, investors will be focusing on commentary from a few prominent senior Federal Reserve officials, including New York Fed President John Williams and Atlanta Fed President Raphael Bostic. It is worth noting that Mr. Bostic’s hawkish view recently, in which he said that the Fed should not be in a rush to cut interest rates, given the continued strength of the U.S. economy and still stubbornly high inflation, weighed on the equity market. On point, the latest Beige Book summation of economic conditions, released at 2:00 P.M. (EDT) yesterday, showed the U.S. economy grew slightly faster in the early spring and businesses added more workers, but there was little progress in lowering inflation. The latter factor could be a near-term headwind for both equities and bonds.  - William G. Ferguson

At the time of this article’s writing, the author did not hold any positions in any of the companies mentioned.