Stocks waver ahead of big-tech earnings and US data, Coca-Cola impresses

• Mega Cap Tech Earnings Week: Tuesday – Alphabet and Microsoft, Wednesday – Meta, Thursday – Amazon and Intel
• Thursday’s first look at GDP is expected to show economy grew at 2.0%
• Fed speaker black out window begins

Wall Street wavers as investors await mega-cap tech earnings, looming debt ceiling drama, and a few key US data points that will influence Fed officals. ​ Over the past month stocks have rallied on expectations that any of the big risks on the table will force the Fed’s rate cutting hand.

Big tech has been outperforming this year as Wall Street expects rate cuts to provide relief to the battered sector. ​ Speculation on rate cuts has fueled bets that sent the multiple for the S&P 500 tech index to trade at almost 25X future earnings. For the rally to continue we need to see a few hundred basis points in rate cuts, which is not necessarily going to happen if the Fed chooses inflation over financial stability over the next year. ​ ​

In an overall slowdown you may see a difficult environment for some of these mega-cap tech giants to catch up to their multiples. ​ ​

US Data

A couple of Fed regional surveys also told a similar story of weakness as the Dallas Fed survey dropped to multi-month lows and the Chicago Fed showed that region is performing well below trend.  No one is doubting manufacturing activity is in a recession, the question is if the service sector can weaken fast enough to keep the disinflationary process going.  The Texas report highlighted that prices and wages continued to increase in April.  If manufacturing prices are rising that should prove disruptive in the event that things are bottoming out there and perhaps could be countering some of the disinflation relief we see when service prices start to come down.

Earnings

Coca-Cola delivered an impressive earnings report as they were able to deliver strong beats with both top and bottom lines despite raising prices. ​ The soft-drink giant is able to pass along these inflationary pressures with no issue and that is helping with their organic revenue. ​ Despite a deteriorating outlook that most of Wall Street has priced in, Coca-Cola was able to maintain their organic revenue growth target of 7-8%. ​ ​

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