All three major stock market averages gained ground last week. The Dow Jones Industrial Average gained 1.3% to 39,132. The NASDAQ Composite added 1.4% to 15,997. The Standard & Poor’s 500 Index rallied 1.7% to 5,089. For the Dow and the S&P 500, these are new record highs. NVIDIA was a factor behind the market rally, as the company reported blowout earnings, revenues, and guidance – generating positive market sentiment. NVIDIA was the center of the market’s attention last week with its shares jumping 16% after earnings, and its market capitalization surpassing $2 trillion at one point.
While NVDIA highlighted this earnings season, aggregate corporate earnings have also been solid/relatively strong. According to LSEG I/B/E/S – of the 448 companies in the S&P 500 that have reported earnings to date for the fourth quarter of 2023, 77.5% have reported earnings above analyst estimates, which compares to a long-term average of 66.6% and prior four quarter average of 76.4%. S&P companies are on track to have seen earnings increase by 10%. These better-than-expected earnings, along with growing conviction future earnings will hold up and the economy can avoid a recession, have been fuel for the stock market rally, which is something new.
Previously, the market advance was supported primarily by hopes the Federal Reserve would be cutting interest rates. However, investors have been walking back expectations on both the magnitude and timing of interest rate cuts, with the first fed rate cut now not expected until July. This would normally be a negative for the stock market, but the positive outlook on earnings and the economy has filled that gap.
Looking to the week ahead, we’ll be tracking some notable earnings reports, along with an important read on inflation (the Personal Consumption Expenditures Price Index for January). Companies scheduled to report earnings include Domino’s Pizza, Lowe’s, Best Buy, Salesforce, TJX Companies, and Snowflake. On Thursday, the U.S. Bureau of Economic Analysis releases the PCE Price Index. This is the Federal Reserve’s preferred inflation gauge, so it is widely watched and very important to the financial markets. Consensus forecasts are for a 2.4% year-over-year increase. Core PCE, which excludes food and energy, is expected to rise 2.8%. The Fed generally targets an inflation rate of 2%. With earnings season winding down, Fed policy, along with economic indicators, will be even more closely followed. Any surprise on the inflation number could create some market volatility this week.
As always, don’t hesitate to contact us with any questions you may have, or if you would like to set up a meeting.
All the best – Southport Station Financial Management, LLC