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S&P 500 Gains Amid Easing Trade Tensions and Mixed Data

S&P 500 gains reflect reduced trade tensions and favorable expectations for Fed policy. However, weaker housing data and consumer sentiment raise concerns. Investors should watch for potential impacts on earnings forecasts.

Date: 
AI Rating:   6

Market Overview
The latest report highlights a positive trend in the S&P 500, which closed up +0.70%, reflecting improved market sentiment due to easing trade tensions between the US and China. This favorable environment contributed to a rally this week, pushing the index to a 2-1/4 month high. Positive adjustments in expectations regarding the Federal Reserve's interest rate policy may further bolster sentiment among investors.

However, mixed economic data may present challenges. Weaker-than-expected US housing starts and a decline in consumer confidence, as indicated by the University of Michigan's consumer sentiment index slipping to a three-year low, could put downward pressure on stock prices. The latest reports show US April housing starts rose by only +1.6% month over month to 1.361 million, which missed expectations while building permits fell -4.7% month over month, further complicating market context.

Earnings Performance
On a more positive note, the first-quarter earnings season shows optimism as 77% of the S&P 500 companies have reported results above estimates, with earnings growth running at +13.1%, significantly outperforming the pre-season expectation of +6.6%. This beats expectations signals strong corporate performance and could positively influence stock prices in the short term.

However, there are downward adjustments to expected full-year corporate profits, with projections now at +9.4%, a decrease from earlier forecasts of +12.5%. Such downgrades could dampen market sentiment in the coming months, as investors weigh the likelihood of earnings momentum continuing against less favorable macroeconomic factors.

From an investor's perspective, while the overall earnings growth is encouraging, the mixed signals from economic data and downgraded expectations for future profits warrant cautious optimism. The focus should now be on monitoring changes in consumer behavior, specifically with inflation expectations rising sharply, as they could lead the Fed to act more aggressively to manage economic stability.

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