All three major stock market averages advanced last week. The Dow Jones Industrial Average rose .7% to 37,864. The technology-heavy NASDAQ Composite advanced 2.3% to 15,311 – fueled in large part by optimism over artificial intelligence. The Standard & Poor’s 500 Index gained 1.2% to 4,840, which is a new closing high, exceeding its previous record reached in January of 2022. All three indices are now positive for the year, after beginning with a short-lived and minor pullback.
Investors are clearly expecting favorable outcomes, on balance, regarding the economy avoiding a recession, Federal Reserve rate cuts, and corporate earnings…..
Economic data has been coming in fairly strong of late: Better-than-expected numbers include retail sales, jobless claims, and the University of Michigan’s consumer sentiment survey for January, which reached the highest level since July 2021. The healthy batch of economic data has reduced the likelihood/fear of a recession, but has also dampened hope of a March rate cut by the Fed.
Currently, the probability of a March rate cut is 42%, according to the CME FedWatch Tool, down from approximately 79% percent about week ago. However, the probability of a rate cut in May is 85%. Simply the thoughts and expectations of interest rate cuts in the relatively near future can be supportive of the market.
While earnings season is just getting underway, the flow of reports picks up notably this week. Companies scheduled to report include Johnson & Johnson, Netflix, 3M Company, General Electric, Verizon, IBM, General Dynamics, Procter & Gamble, Intel, Visa, Tesla, RTX, American Airlines, Intuitive Surgical, AT&T and American Express. Overall, consensus estimates are for S&P profits to grow about 11% this year.
Away from earnings this week, we’ll be tracking the Personal Consumption Expenditures Price Index report for December, scheduled to be released Friday morning by the Bureau of Economic Analysis. This is the Fed’s preferred inflation gauge, and widely followed by and important to the market. Expectations are for a year-over-year increase of 2.6%. Get ready for a busy week in the markets!
All the best – Southport Station Financial Management, LLC