Can the S&P 500 Climb Higher in May 2023?

Equity markets in the U.S. are expected to remain volatile this week, given the financial crisis surrounding its banking sector. Shares of First Republic Bank (NYSE: FRC) plunged over 50% on Friday, reaching an intraday low of $2.98 per share. So far this year, the stock has plummeted 97%, with the majority of losses occurring after investor confidence in the bank waned due to the collapse of two regional lenders in March.

Last week, CNBC revealed that advisors for First Republic were devising a plan which will be presented to larger banks, allowing the regional lender to sell bonds and other assets at above-market rates and subsequently raise equity. While the purchasing banks would incur a loss on the bonds, this approach could prove more cost-effective in the long run compared to allowing the bank to fail and face regulatory seizure.

On Friday, Reuters reported that U.S. officials from the FDIC, Treasury Department, and Federal Reserve were arranging meetings with other banks to establish a rescue plan for First Republic.

Before the bank disclosed its first-quarter results on Monday, First Republic's shares closed at $16. The report demonstrated a roughly 40% decline in deposits, causing the stock to drop over 60% in the following two days and reach an all-time low.

First Republic is a regional bank that has primarily catered to high net worth individuals and their businesses, including providing low-interest mortgages to such clients.

Which S&P 500 companies will release earnings this week?

In the coming week, earnings season will persist with reports from notable companies like Starbucks (NASDAQ: SBUX), Uber Technologies (NYSE: UBER), AMD (NASDAQ: AMD), Qualcomm (NASDAQ: QCOM), and Apple (NASDAQ: AAPL). Thus far, S&P 500 companies have demonstrated their most outstanding performance compared to analysts' expectations since Q4 of 2021, as per FactSet data.

Approximately 53% of S&P 500 companies have released their earnings, with 79% surpassing consensus EPS estimates. This surpasses the five-year average of 77% and the 10-year average of 73%. The consumer discretionary sector has experienced the most substantial earnings growth among all sectors, with an average year-over-year increase of 47.8%. Conversely, the materials sector has underperformed, witnessing a 30.3% decline in earnings compared to the previous year.

Labor market under focus

Next week, new data on the U.S. labor market will be unveiled. The Bureau of Labor Statistics (BLS) is set to publish its Job Openings and Labor Turnover Survey (JOLTS) for March on Tuesday, detailing the month's total openings, hires, quits, and separations. It's expected that job openings in March fell to 9.7 million, down from 9.93 million in February, which would represent the lowest number in two years.

On Wednesday, ADP (NASDAQ: ADP), a payroll provider, will release its National Employment Report for April, focusing on private sector payrolls. It's estimated that private companies added 135,000 jobs, a slight decrease from the 145,000 jobs gained in March. This leads up to the Labor Department's nonfarm payrolls report on Friday.

Analysts predict that payrolls increased by only 178,000 in April, the smallest rise since a loss of 268,000 jobs in December 2020. If this holds true, it could indicate a decelerating economy and a relaxation of the tight labor market experienced over the past year, during which the Federal Reserve increased interest rates.

Interest rates

Next week, the Federal Open Market Committee (FOMC) members, who are Federal Reserve policymakers, will convene for their latest meeting to discuss the central bank's rate-setting policies.

According to CME Group's fed funds futures, it is widely anticipated that officials will increase the benchmark federal funds rate by 25 basis points, bringing it to a range of 5% to 5.25%. This hike could potentially be the final one in the Fed's tightening campaign. In an attempt to curb the highest inflation rates seen in 40 years, Fed policymakers have raised interest rates by a cumulative 475 basis points since March of the previous year.

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