This week is unfolding as a narrative of contradictions. Stocks are struggling for direction amid the backdrop of rising bond yields, amplifying volatility. This tug-of-war won’t end anytime soon.

Corporate earnings are a major positive force. To date, roughly one-third of S&P 500 companies representing 40% of the index’s market capitalization have posted earnings results. The early returns are encouraging, with 80% of companies exceeding earnings forecasts by an impressive 8.5%. The consensus of analysts calls for a 10.3% year-over-year Q1 earnings increase.

The tech sector has rebounded, after getting pummeled last week. “The Magnificent Seven” technology megacaps are projected to post a collective 38% surge in Q1 profits.

Shares of Tesla (NSDQ: TSLA) have turned around, as the electric vehicle giant’s first-quarter results defied grim expectations. Tesla’s announcement of an accelerated rollout of more affordable models has injected optimism into an apprehensive tech sector.

On the industrial front, stalwarts Boeing (NYSE: BA) and General Motors (NYSE: GM) both beat Q1 expectations on the top and bottom lines.

In the case of embattled Boeing, the aircraft manufacturer still reported a profit loss and its revenue was down, but the attitude of Wall Street was “it could have been worse.”

Counterbalancing solid corporate earnings are rising bond yields, with the benchmark 30-year U.S. Treasury yield (TNX) hovering at 4.81% after jumping

As investors seek refuge, defensive sectors are showing strength; small-caps and industrials are languishing. Moody’s downgrade on Wednesday of Boeing’s credit rating further underscored the market’s prevailing unease. Boeing burned through a lot of cash in the previous quarter, as its safety scandal worsens. At one time the crown jewel of American manufacturing, Boeing is now saddled with a credit rating that’s on the cusp of junk.

Meanwhile, the energy sector is witnessing its own tug-of-war, with crude oil prices vacillating within a narrow trading range. Oil prices year to date have been climbing upward, reflecting geopolitical tumult, but they’re not rising as much as analysts had predicted.

Despite a modest year-over-year increase in the average price of oil in Q1 2024 relative to Q1 2023, the energy sector so far is reporting the third-largest earnings decline of all 11 sectors in the S&P 500 for Q1 at -25.6%, according to research firm FactSet.

We just got some bad economic news that’s likely to drive oil prices down.

The Bureau of Economic Analysis reported Thursday that U.S. gross domestic product (GDP) growth in the first quarter was much weaker than expected. GDP increased at a 1.6% annualized pace when adjusted for seasonality and inflation. The consensus estimate had called for an increase of 2.4% following a 3.4% gain in the fourth quarter of 2023 and 4.9% in the previous period.

Consumer spending increased 2.5% in the period, down from a 3.3% gain in the fourth quarter and below the 3% estimate.

Investors are nervous ahead of the personal consumption expenditures price index (PCE) for March, scheduled for release Friday. The PCE reading will guide Federal Reserve deliberations. Hotter-than-expected inflation readings so far this year have spooked investors, dashing hopes of an interest rate cut in June. If inflation continues to come in hot, Wall Street will start to worry about the “S” word: stagflation.

Big Tech in the driver’s seat…

Another factor that’s generating anxiety in the markets is the disproportionate influence of Big Tech’s earnings. Among The Magnificent Seven tech behemoths, these five are expected to account for 64.3% of the quarter’s year-over-year growth: Amazon (NSDQ: AMZN), Alphabet (NSDQ: GOOGL), Meta Platforms (NSDQ: META), Microsoft (NSDQ: MSFT), and Nvidia (NSDQ: NVDA).

These five are projected to be the top five contributors to year-over-year earnings growth for the S&P 500 for Q1. Without them, the S&P 500 would post a loss of 6.0%. See the following chart:

Source: FactSet

Until inflation fears abate, interest rates will remain elevated and the Fed will tread cautiously. That dynamic in turn is pulling down economic growth projections.

In response to the latest worrisome GDP data, the main U.S stock market indices sharply fell Thursday as follows:

• DJIA: -0.98%
• S&P 500: -0.46%
• NASDAQ: -0.64%
• Russell 2000: -0.72%

The good news is that the equity indices closed much higher than the day’s lows. It was a choppy day of trading. Further good news came from tech behemoths that reported earnings Thursday after the closing bell.

Alphabet and Microsoft beat on both earnings and revenue; Intel (NSDQ: INTC) beat on earnings and slightly missed on revenue. Alphabet also announced its first-ever dividend.

Meta CEO Mark Zuckerberg rattled investors on the company’s quarterly earnings call Wednesday by focusing on the firm’s long-term investments in artificial intelligence (AI) and the metaverse.

Meta shares got hammered Thursday, even though the company beat on the top and bottom lines. Investors were reminded of how Meta is bleeding cash on the metaverse, which is increasingly viewed by Wall Street as a quixotic pursuit.

Regardless, robust operating results from Big Tech this week are helping to offset economic gloom and rising yields. The tug-of-war continues.

Read This Story: Gold and Crypto: Powerful Inflation Hedges to Consider Now

PS: If you’re looking for an inflation hedge, consider cryptocurrency. That’s right…crypto.

Crypto is making ordinary investors rich…and it serves as an inflation hedge, to boot. But you need to make your move now, because the fuse is lit on this market. And every day you wait is literally costing you thousands in profits.

If you’re worried you can’t figure out crypto…don’t be.

Our in-house crypto expert, Alex Benfield, will make it easy for you. You won’t have to figure anything out on your own. He’ll walk you through everything, step by step.

Alex made a personal fortune on crypto. Now, his mission in life is to spread the word about crypto and make other people wealthy, too.

Get in on the crypto action…now. To learn more about Alex’s new trading service, Crypto Trend Investor, click here.

---

John Persinos is the editorial director of Investing Daily.

To subscribe to John’s video channel, click this icon: