Market Milestones: S&P 500 Surges on Soft Inflation Data and Robust Corporate Earnings
EQUITIES ADVANCE AGAIN AS THE S&P 500 HITS MULTIPLE MILESTONES DRIVEN BY SOFTER-THAN-EXPECTED INFLATION NUMBERS AND POSITIVE CORPORATE EARNINGS REPORTS
Equity markets turned in another positive week and celebrated a few milestones, including the S&P 500 cresting that purely-psychological 5,000 point barrier as it has risen in 14 of the last 15 weeks – something it has not done since 1972
While the S&P 500 was crossing milestones with its weekly gain of +1.4%, the small cap Russell 2000 jumped +2.4% and the tech-laden NASDAQ advanced +2.3% while the mega-cap DJIA was flat for the week
NASDAQ briefly crossed that other purely phycological 16,000 point barrier before pulling back and is now about 0.4% from its 16,057 record closing high reached in November 2021
The big news on the week was when data showed that U.S. monthly consumer prices rose less than initially estimated last month, fueling additional hopes of a soft landing engineered by the Fed
The probability of a 25 basis points rate cut at the May FOMC meeting is 63.1% now, down from 73.2% one week ago, according to the CME FedWatch Tool
Markets were also propelled by generally good earnings reports, with close to 2/3 of S&P 500 companies reporting results, with a few notable standouts including Ford, Eli Lilly, and DuPont
Consumer credit took center stage and increased by $1.6 billion in December as revolving credit increased by $1.1 billion to $1.314 trillion and nonrevolving credit increased by $0.5 billion to $3.696 trillion
Consumer credit increased at a seasonally adjusted annual rate of 0.4% in December
The 2-year Treasury yield rose 12 basis points to 4.50% and the 10-year rose 16 basis points to 4.19%
Oil jumped almost 6% on the week and ended at $76.56/barrel
One dark spot on the week was a collective worry about regional banks as shares in New York Community Bank plunged dramatically after reporting weak results in the wake of its acquisition of failed Signature Bank during early 2023’s regional banking turmoil
New S&P 500 High on Softer Inflation
This week, the S&P 500 index surged past the significant 5,000 mark, reaching a new all-time high, buoyed by stable inflation figures from last year. This data sparked optimism among investors on Wall Street, who anticipate a quicker pace of interest rate cuts by the Federal Reserve. Furthermore, a slew of positive corporate earnings reports helped propel the 30-stock DJIA to new record highs while NASDAQ, dominated by tech stocks, remains less than half of a percentage point below its previous peak. Late in the week, equities received a boost from the Bureau of Labor Statistics' report indicating that U.S. consumer prices in December rose less than initially projected. Specifically, the consumer price index showed a 0.2% increase, revised from the previously reported 0.3%. However, the upbeat sentiment was tempered by the upward revision of November's data, which indicated a 0.2% increase rather than the initial 0.1%.
Services Sector Expands Again
On Monday, it was reported that economic activity in the services sector expanded in January for the 13th consecutive month as the Services PMI registered 53.4%, say the nation's purchasing and supply executives in the latest Services ISM Report On Business. The sector has grown in 43 of the last 44 months, with the lone contraction in December 2022. “In January, the Services PMI registered 53.4%, 2.9% points higher than December’s seasonally adjusted reading of 50.5%.
Earnings Reports Generally Positive
On Friday, research firm FactSet announced that with 67% of S&P 500 companies reporting actual results, 75% of S&P 500 companies have reported a positive EPS surprise and 65% of S&P 500 companies have reported a positive revenue surprise. In addition, for Q4 2023, the blended (year-over-year) earnings growth rate for the S&P 500 is 2.9%. If 2.9% is the actual growth rate for the quarter, it will mark the second-straight quarter that the index has reported earnings growth. Also, eight sectors are reporting higher earnings today compared to December 31 due to positive EPS surprises. And for Q1 2024, 52 S&P 500 companies have issued negative EPS guidance and 21 S&P 500 companies have issued positive EPS guidance. Finally, the forward 12-month P/E ratio for the S&P 500 is 20.3. This P/E ratio is above the 5-year average (18.9) and above the 10-year average (17.7).
Trade Deficit Widens
On Wednesday, it was reported that December exports were $258.2 billion, $3.9 billion more than November exports. December imports were $320.4 billion, $4.2 billion more than November imports.
In addition, the December increase in the goods and services deficit reflected an increase in the goods deficit of $0.7 billion to $89.1 billion and an increase in the services surplus of $0.4 billion to $26.9 billion. For 2023, the goods and services deficit decreased $177.8 billion, or 18.7 percent, from 2022. Exports increased $35.0 billion or 1.2 percent. Imports decreased $142.7 billion or 3.6 percent.
Additional Economic Data This Week
Initial jobless claims decreased by 9,000 to 218,000 for the week ending February 3.
Continuing jobless claims for the week ending January 27 decreased by 23,000 to 1.871 million.
US mortgage applications in the US rose by 3.7% on the week ending February 2nd.
Applications to refinance a home soared by 12.6%, extending the 1.6% increase in the last week of January.
Sources: ismworld.org; federalreserve.gov; bea.gov; factset.com; ;msci.com; fidelity.com; nasdaq.com; wsj.com; morningstar.com
Disclosures
Dow Jones Industrial Average (DJIA) is a price-weighted index of 30 actively traded blue chip stocks. Indexes are unmanaged and do not incur management fees, costs or expenses. It is not possible to invest directly in an index.
Nasdaq is a global electronic marketplace for buying and selling securities. Originally an acronym for "National Association of Securities Dealers Automated Quotations"—it was a subsidiary of the National Association of Securities Dealers (NASD), now known as the Financial Industry Regulatory Authority (FINRA). Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.
Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The U.S. Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending federal income taxes may be due on any earnings withdrawn. A 10% federal penalty tax and possibly state or local tax can also be added.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.