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Fundamental Analysis

Tesla and Apple Lead Rally as Equities End Higher

  • 78.1% of the S&P 500 companies that have reported earnings have exceeded expectations.
  • Tesla made progress in introducing its driver-assistance package in China.
  • Markets expect 35 basis points of Fed cuts this year.

Equities ended higher on Monday amid earnings optimism and a rally in Tesla and Apple shares. At the same time, investors were preparing for the FOMC policy meeting and the all-important nonfarm payrolls report. 

According to data, 78.1% of the S&P 500 companies that have reported earnings have exceeded expectations on Wall Street, showing better-than-expected performance in the first quarter. It is also a sign that firms have held up well in the face of high borrowing costs in the country. 

Meanwhile, equities got a boost from a rally in Tesla shares on Monday. Notably, the company made significant progress over the weekend to introduce its driver-assistance package in China. Tesla has been under a lot of pressure recently because of increased competition in the market. At the same time, demand for its vehicles has dropped. Therefore, any positive development would boost its valuation.

Elsewhere, Apple shares soared after getting an upgrade on its rating. This upgrade came as the company plans to use more generative AI in its phones, which could boost demand and sales.

At the same time, investors remained cautious ahead of a big week in the US calendar. The FOMC meeting on Wednesday will have a significant impact on equities as it could shift the outlook for rate cuts. Investors expect the Fed to maintain rates and strike a hawkish tone. This means higher rates for longer. Any further delays in the Fed’s rate cut cycle could be bearish for equities. Currently, markets predict the first rate cut in September. However, if policymakers are more hawkish than expected, markets could push the timing to December, allowing for only one rate cut this year. 

Fed rate cuts (Source: Bloomberg)

Fed rate cuts (Source: Bloomberg)

Furthermore, markets expect 35 basis points of cuts this year. It is a significant shift from early in the year when investors expected 150 basis points of cuts. The focus will also be on the central bank’s economic projections. These will show the Fed’s expectations for inflation and growth, giving more clues on future policy moves.

Additionally, there will be more volatility on Friday when the US releases the nonfarm payrolls report. Economists expect employment to drop in April and the unemployment rate to hold at 3.8%. Another upbeat report could further dent rate cut expectations.