VIDEO: Boosts From These Holdings Can't Buoy the Market Alone

In today’s Daily Rundown video, Chris Versace explains that, even though quarterly results from Microsoft MSFT and Meta META are lifting the market as we kick off May, the market is still one that is trading day to day based on the latest headlines.

Recognizing that, Chris breaks down today’s April ISM Manufacturing Report, explaining why that data and the upcoming April ISM Services PMI could lead to some rate cut expectation resets. 

Chris also shares what we’re looking for in upcoming quarterly results from Apple AAPL, Amazon AMZN, Motorola Solutions MSI and Eaton ETN. 

Transcript

CHRIS VERSACE: Hey folks, Chris Versace here. It is Thursday, May 1. I hope you enjoyed our latest Stocks & Markets podcast with Bob Byrne. But I'm back with a fresh video today, again Thursday, May 1.

As you know, we are coming off what we could easily call a roller coaster ride for the month of April. But as we start off the new month, we are seeing the market move nicely higher following better-than-expected quarterly results from another-- from a number of companies, but especially from our own Microsoft and Meta, which are, as you can imagine, given the size, that they are in both the S&P 500 and the NASDAQ Composite, they are giving it some nice lift.

I hope you saw our alert in which we kind of broke down the reasons why that is happening, as well as some larger thoughts on their respective March quarters and their near-term outlooks. But if you didn't, the cut to the quick is that AI and data center, well, they remain strong, as does spending on adding incremental capacity for AI and data center. That's going to ripple through the portfolio in a number of positive directions.

But we also have to acknowledge that not only is that spending remaining strong. We heard that last week from Google. We heard it from Microsoft, where they reiterated their spending plans for the second half of the year because they will be incrementally capacity constrained just because demand is so strong. But Meta. Meta came out and actually incrementally lifted their capital spending plans for this year, again focusing in on the core business, which means AI and data center.

To this, we just simply have to say that this confirms a lot of the signals that we've been sharing with you week in, week out as it relates to AI adoption and data center construction. So extremely positive and reaffirming for a number of positions, not only the ones that we just mentioned, but also those for Nvidia, Marvell, ServiceNow, Elastic, and Eaton.

Now I will share with you that as much as we're enjoying today's move, we have to remember that the market-- it's simply in one of those periods where it is trading day to day, based on the latest headlines. The overwhelming headlines this morning, including those I just mentioned, they skew positive.

But we also have to remember that today, we got the April ISM manufacturing figures, and they showed that that part of the economy continues to contract, or continued to contract in the month of April, I should say. Hiring slower in that part of the economy. But prices continue to tick higher.

Remember that in the March ISM manufacturing data, we saw a big pop due to tariffs. And in the April data, we saw it inch higher again because of tariffs. So I'd have to say that when we think about GDP expectations for the current quarter, what we found in the April ISM manufacturing PMI, not constructive. And that pricing data, again, ticked higher month over month. It isn't going to help those who are arguing that the Fed needs to cut rates.

You know, I would say that we have to remember, though, that the manufacturing component of overall GDP, 10%, 15%. And in our view, that means that the services PMI that we will get from ISM next week is much, much more critical about the speed of the economy, hiring, import/export demand, and, of course, the pricing component. And that report is going to come, like I just said, early next week ahead of the Fed's policy meeting.

So as we think about all of this, let's think about the market trading day-to-day based on its most recent headlines. Well, what do we have coming later today? Well, we're going to get quarterly results from Apple and Amazon.

Industry data points for Apple say that Apple took iPhone market share during the March quarter. So we could see a positive surprise on that end, especially as folks continue to lean into premium models, which, of course, carry better average selling prices. However, I think that we can take a note from Microsoft's guidance about its more personal computing segment, something we discussed in our note to you about that earnings report, that they are taking a wider approach, given the uncertainty of tariffs.

We could very well see Apple do the same. And what it shows and says on that front, of course, will likely be the primary driver of Apple shares tomorrow. Remember, Apple is one of the top two holdings in both the S&P 500 and the NASDAQ Composite.

I will say that I do expect Apple's services business, the higher margin business, to perform well during not only the March quarter, but during the June quarter, and because of carriers higher margins to the extent-- to the extent, excuse me, it is a greater influence on overall revenues. That could be a silver lining in the March quarter earnings report and in the June quarter guidance. But we'll have to see what Apple has to say tonight.

We also, tonight, as I said, will get quarterly results from Amazon. Here, too, given comments from management members last week, it sees continued strong demand for AI and data centers. So we're not expecting any major surprises when it talks about capital spending and overall AWS demand.

However, given the impact of tariffs, we are going to have to be very mindful for what Amazon has to say about its digital shopping business. Now we continue to think that folks will lean into digital shopping and Amazon in particular to stretch the disposable spending dollars that they do have. But we will have to see what Amazon says about potential supply constraints, especially given a lot of the headlines that we've talked about with you about what's impacting port and air freight shipment volumes.

And remember, that's supposed to start happening, seeing the impact, in the coming days. So we'll want to be mindful of that as we digest what Amazon has to say. After the close, though, we also have quarterly results from Universal Display, and we will be watching quarterly results from Motorola Solutions as it relates to Axon. That's today.

Tomorrow morning, we have two things that we're watching closely. First, quarterly results from Eaton. Now I have to say, given all the AI and data center comments that we've collected last week, this week, we are expecting Eaton to deliver a really solid earnings report. We would be surprised, candidly, if they don't.

We also expect them to reiterate their recent analyst day comments about megaprojects and how Eaton stands to benefit from that in the coming quarters. So again, expecting an upbeat report from Eaton. But we will also get the April employment report tomorrow. And this is really where the notion of the market trading day-to-day comes back in.

Yesterday, we saw a big disappointment in the ADP employment report for the month of April. Roughly almost half, if I remember correctly, of the number of jobs were created that were expected. That's the private sector.

Then we have to think about what we saw in the February and March Challenger job cuts, reports. That popped. Even today, the Challenger report for April was still considerably higher year over year down compared to what we saw February/March, but still up significantly on a year-over-year basis.

You take those three reports, and the concern that we see in the April employment report is on the public sector side. We could see slower hiring in the private sector, given what we saw with ADP's report. But the concern we really have is in the public sector side.

So as we digest that report, which could surprise to the downside, we're going to have to remember, however, that the inflation data that we are starting to see points to, in tariffs, really re-accelerating inflation pressures. That is likely to put the Fed, as we said earlier this week, between a rock and a hard place.

The Fed does have a dual mandate. But we will have to really pay close attention to what we see in that services PMI report early next week to get a true bead on the pace of the economy. The employment report, even though it may be weaker than expected, the inflation data is likely to keep the Fed in check in the near term, and that, between what we learned Friday and Monday, could lead the market to have to readjust its rate cut expectations.

Remember, the market for the CME FedWatch tool is still seeing something close to four rate cuts between June and December, based on the inflation data that we've saw thus far. Questionable. Questionable.

But again, the data that we'll get tomorrow with the April employment report and the April services PMI report early next week, that will help us fine tune expectations for what the Fed is likely to say as it exits its policy meeting next Wednesday. So as you can tell, there's going to be a lot going on later today and tomorrow.

So even though we will end the week with the next edition of the monthly round-up, please be sure to check your emails and alerts. We're going to have a lot of stuff coming your way. We want to make sure that you are getting our latest thoughts. And as I like to say, if we make any moves with the portfolio, we want you right there with us. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long MSFT, META, AAPL, AMZN and ETN.