Strong Earnings Continue Driving Stocks to Record Highs

Last week was the busiest week of Q1 earnings season, as close to half of the S&P 500 reported quarterly results including Microsoft, Amazon, Meta, Alphabet, and Apple.  Alphabet stock jumped 10 percent on the back of strong results from Google Cloud and Gemini. Google Cloud revenue climbed more than 60 percent; it now represents 18 percent of the company’s overall revenue and is gaining ground in catching up to Amazon Web Services and Microsoft Azure. Amazon, Meta, and Microsoft didn’t fare as well. Amazon reported good results, thanks to strong consumer spending and accelerating growth at Amazon Web Services, but its stock failed to respond having already shot higher by 25 percent in April. Meanwhile, shares of Meta and Microsoft slumped, as user growth at Meta failed to impress and spending concerns at Microsoft outweighed earnings that topped guidance.

Apple came through with strong top- and bottom-line results. Revenue jumped 17 percent year over year to $111 billion, and gross margin checked in at a record 49.3 percent. Management expects Q2 to be similarly strong, as the iPhone 17 upgrade cycle continues to impress. Shares moved higher following the report. The stock has now clawed its way back to break-even for the year to date, after an early year slump.

Outside of the Mag 7, Caterpillar and Eli Lilly were big winners. Caterpillar showed AI-driven profits aren’t confined to the tech universe, with profit surging from AI data center construction demand. The company expects the growth to continue, predicting higher sales for the current quarter. Its stock popped six percent following the report.1 Eli Lilly also topped expectations, as sales of its weight-loss and diabetes drugs continued to soar. Lilly shares moved seven percent higher on the news. With 63 percent of the S&P 500 having reported earnings, 84 percent of companies have delivered a positive earnings surprise. And earnings are on pace for the highest year-over-year growth rate since Q4 2021. This all adds up to a huge April recovery and record highs for the S&P 500.

The bond market has had decidedly less to cheer about. High energy prices continue to fuel inflation concerns, putting future interest-rate cuts in jeopardy and pushing bond yields higher. The Federal Reserve did little to soothe those fears, with three members objecting to the somewhat dovish announcement that it was holding rates steady for now. Following the Fed meeting, the 10-year Treasury yield inched back over 4.4 percent and bond prices moved lower.

Looking ahead, Q1 earnings season rolls on this week with Disney, Uber, Kraft, McDonalds and others on tap. And still lurking in the background is the Iran conflict, which could take some wind out of the market’s sails if not resolved soon.