Market stands on back of Microsoft, Alphabet, and PCE print

You need a lot of computing power to get through this week’s news flow, which is still flowing in a market-moving way. Yesterday was about Meta Platforms (META) and the Q1 GDP Report. Today is about Alphabet (GOOG), Microsoft (MSFT), and the March Personal Income and Spending Report.

Okay, it isn’t (and wasn’t) entirely about those news items, but they have been the focal points for a market aiming to reconcile if a larger pullback is in order, a lateral consolidation is on tap, or if the rally that began in late October is ready to resume.

Things looked troublesome at the start of yesterday’s trading, but by the close things looked a lot less troublesome, which provided a good setup heading into the earnings reports from Alphabet and Microsoft after the close, both of which comfortably exceeded expectations. Alphabet for its part wowed shareholders even further with news of a first-ever dividend and share repurchase plan up to $70 billion.

Shares of MSFT are up 3.6% while shares of GOOG are up 11.8%. Those gains are reflective of the optimism in AI growth opportunities that has spilled over to the broader market, which has been further aided by the positive response to earnings reports from the likes of Snap (SNAP), Colgate-Palmolive (CL), L3Harris Technologies (LHX), Ball Corp (BALL), Western Digital (WDC), Mohawk Industries (MHK), and The Boston Beer Company (SAM) to name a few others.

That response has overshadowed the weakness in Exxon (XOM), Chevron (CVX), and Intel (INTC) following their results, as has the response to the March Personal Income and Spending Report.

Briefly, personal income increased 0.5% month-over-month, as expected, while personal spending increased a larger-than-expected 0.8% (Briefing.com consensus 0.6%). Both the PCE Price Index and the core-PCE Price Index, which excludes food and energy, were up 0.3% month-over-month, which was spot-on with consensus estimates.

On a year-over-year basis, the PCE Price Index was up 2.7% versus 2.5% in February, and the core-PCE Price Index was up 2.8%, unchanged from February.

The key takeaway from the report is the recognition that progress on inflation has stalled. Therefore, market participants should continue to expect the Fed to stall on any rate cut.

The latter point notwithstanding, there is a bit of relief that the inflation data weren’t worse than feared. There was some chatter after yesterday’s Q1 GDP Report that the PCE Price Indexes could register something on the order of 0.5%. That didn’t happen, but taking a step back, the cause for celebration should be muted.

In the last three months, the core-PCE Price Index has risen 0.5%, 0.3%, and 0.3%, respectively, versus 0.1% in November and 0.2% in December.

The Treasury market, which has already been adjusting to the specter of stickier inflation prints and fading rate-cut expectations, saw some knee-jerk reactions to the data. The first move was lower (seeing that things weren’t worse than feared), but the next move was higher (seeing that things are still not improved).

The 2-yr note yield, at 5.01% just before the release, is at 4.99% now. The 10-yr note yield, at 4.68% just before the release, is at 4.68% now after skimming 4.65% in the knee-jerk dip.

How the Treasury market ultimately sits today with this information will have some sway over how the stock market stands today.

Currently, the indices have an upright posture thanks to Microsoft’s and Alphabet’s leadership. The S&P 500 futures are up 37 points and are trading 0.8% above fair value, the Nasdaq 100 futures are up 158 points and are trading 0.9% above fair value, and the Dow Jones Industrial Average futures are up 42 points and are trading 0.1% above fair value.