NEW YORK, April 24 (Reuters) - A scorching U.S. stock rally faces a test from a mammoth week of corporate results led by major technology companies, along with a Federal Reserve meeting that could mark the end of Jerome Powell's tenure as head of the U.S. central bank.
Equity indexes have soared this month, rebounding from worries about economic fallout from the Middle East conflict to mint record highs. The benchmark S&P 500 (.SPX), as of Thursday was up 12% since March 30, while the tech-heavy Nasdaq
Composite (.IXIC), rose more than 17% in that span.
"We've come a long way in a short amount of time," said Anthony Saglimbene, chief market strategist at Ameriprise. "Next week is just going to be a big week for confirmation of the rally."
Although a Middle East ceasefire alleviated concerns about a more severe escalation and helped fuel the equities rally, developments involving the U.S.-Israeli war with Iran remained likely to jostle asset prices in coming days. Stocks pulled back on Thursday after U.S. oil prices rose close to $100 a barrel on reports that air defenses were engaging targets over Tehran.
"MAGNIFICENT" EARNINGS MOMENT
Expectations for strong profits this year have boosted investors' bullish outlook for stocks, and first-quarter reporting season is off to a solid start. As of Thursday, 82% of S&P 500 companies have posted earnings above analysts' expectations, with overall earnings expected up 15.6% in the first quarter, according to Tajinder Dhillon, head of earnings research at LSEG.
More than one-third of the S&P 500 is set to post results next week alone. They include five of the "Magnificent Seven" megacap companies, which have been among the signature stocks of the bull market that began more than three years ago.
Microsoft (MSFT.O), Alphabet (GOOGL.O), Amazon (AMZN.O), and Meta Platforms (META.O), report on Wednesday, with investors focusing on their massive capital spending plans to build out data centers and other infrastructure to support artificial intelligence applications. Apple (AAPL.O), reports on Thursday, on the heels of the iPhone maker announcing a change of CEOs.
"These companies have a lot to prove, and for their stock prices to move higher, they're really going to have to wow investors on the earnings front," Saglimbene said.
After mixed starts to the year, the Magnificent Seven and tech stocks broadly have mostly put up a strong performance this month.
Chipmaker stocks have been standouts, with the Philadelphia SE Semiconductor index (.SOX), rising for 17 straight sessions as of Thursday.
Other companies reporting next week include weight-loss drugmaker Eli Lilly (LLY.N), oil major Exxon Mobil (XOM.N), and payments processing company Visa (V.N).
FED MEETING TO BE POWELL'S LAST?
The Fed is widely expected to hold interest rates steady in its policy statement on Wednesday at the end of its two-day meeting. Investors will seek updated views from policymakers about the war's impact on the economy and the path for interest rates.
Concerns about a war-driven surge in energy prices have led investors to temper expectations for equity-friendly rate cuts this year. Markets are pricing in less than one standard 25-basis-point cut by December, according to LSEG data, after expecting at least two before the war began in late February.
Still, "the Fed being on hold...is somewhat supportive, versus other central banks that are expected to hike in the next couple of meetings," said Marvin Loh, senior global macro strategist at State Street. "So it ... provides a little bit of a tailwind for U.S. assets."
The meeting also could be the last with Powell at the helm, with his term as chair set to end on May 15. Former Fed Governor Kevin Warsh, President Donald Trump's pick to take over as Fed chair, appeared before a U.S. Senate panel this week for his confirmation hearing.
But a key senator is vowing to delay Warsh's confirmation until the Trump administration drops a probe of Powell over a renovation of the Fed's headquarters, leaving the succession timing somewhat unclear. Trump has seethed at Powell for the Fed not cutting rates more aggressively.
Next week also features data on first-quarter U.S. economic growth, as well as the March Personal Consumption Expenditures Price Index, the Fed's preferred gauge for inflation. Both reports could offer insight into the Middle East conflict's economic fallout so far.
The war remains a key issue for markets, said Sid Vaidya, chief investment strategist at TD Wealth.
"The concern for us would be that we've seen the market rebound, but we don't have a permanent resolution in place," Vaidya said.
"The longer the conflict goes, the greater the risk to the real economy, which will then translate into some potential pain and volatility for markets."
Reporting by Lewis Krauskopf, editing by Colin Barr and David Gregorio
