Weekly Market Summary

Extra Credit^*

• With most S&P 500 companies having reported, 76% companies beat first-quarter earnings estimates (vs. a 73% average for the fourth quarter of 2023) and 60% beat revenue estimates (vs. 64%). In terms of earnings beats by sector, technology (89%), industrials (85%) and staples (83%) were notable standouts. S&P 500 companies surprised on net income by 3.4% (vs. 4.6% in the fourth quarter). Notably, much of the earnings surprise was concentrated within Magnificent 7 companies relative to remaining S&P 493 (9.9% vs. 1.6%). The largest sectors driving earnings this quarter were communications (13.8%), financials (6.7%) and technology (6%). Revenue surprise was not as strong on the quarter at 0.6% (vs. a 1.4% average in the fourth quarter) given some large misses across industrials and utilities. Overall, first-quarter revenue growth came in at 3.9% (2.8% excluding the Mag 7) and net income growth at 6.9% (-1.4% excluding the Mag 7).
• For buybacks, activity has surged since 3Q23 from approximately $178 billion to about $240 billion currently. Much of the increase in gross buyback executions since last year has been driven by the technology sector ($11.4 billion) and communications ($10.5 billion). In terms of buyback announcements, S&P 500 buyback announcements stand at $480 billion year-to-date.
• Credit spreads are trading in the middle of their year-to-date range after widening across the board over the past month. Spreads reached their cycle tights in early May across investment-grade, high-yield and leveraged loans. Since then, investment grade is 8 basis points wider, high yield is 27 basis points wider, and leverage loans have seen selling. This selloff was driven by lower Treasury yields, thanks to a low CPI print, some flight to quality on the back of the French snap poll surprise, and heavier-than-expected issuance.
• The liquidity risk premium in credit has declined across the board, but more so in the U.S. than in Europe. In the U.S. investment-grade universe (Bloomberg Index), the liquidity risk premium has declined from 27% of index spreads between January 2011 and December 2016 to 12% of spreads between January 2017 and December 2023. In U.S. high yield (Bloomberg Index), it has declined from 26% to 20% of spreads over the same periods. This decline puts ever more pressure on passive fixed-income funds, as selectivity premium through active fixed-income funds looks to have increased.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished May both at 1.25%, respectively. This was compared to 1.32% and 1.55% from April, as the high yield default rate was 30 bps lower and the loan default rate now sits at a 16-month low. The long-term historical default rate for loans and high yield bonds was 3.0% and 3.4%, respectively.

Sources: Bloomberg and JP Morgan as of 6/24/24. The Magnificent 7 includes Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms and Tesla.