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Profit from the Pros By Kevin Matras Executive Vice President
Stocks Up On Friday And For The Week, S&P Closes Above 5,000
Stocks closed mostly higher on Friday with the small-cap Russell 2000 leading the way with a 1.53% gain, followed by the Nasdaq with a 1.25% gain.
It should also be noted too that the S&P 500 hit a milestone by finally closing above 5,000 for the first time ever to end at 5,026.61. These big numbers are always important markers.
But all of the indexes have something to cheer about as they all closed higher last week. That makes it 5 up weeks in a row for the Dow, S&P and Nasdaq.
Stocks have performed well this earnings season. But there's still plenty more to go.
Roughly 60% of the S&P 500 companies have already reported. And so far, total Q4 earnings are up 4.4% vs. this time last year, on 3.5% higher revenues, with 81.8% posting a positive EPS surprise, and 64.6% posting a positive sales surprise.
In aggregate those are solid numbers. But we've also seen some companies report blowout earnings which have sent their respective shares soaring. Not obscure names, but big marquee names. And that means plenty of people participating.
This week we'll get another 866 companies on deck to report with a fair share of headliners, including Coca-Cola, Shopify, Airbnb, Zoetis, and Applied Materials to name a handful.
We'll also get another look at inflation with the Consumer Price Index (CPI) on Tuesday, and the Producer Price Index (PPI) on Friday.
Last month's CPI and PPI reports confirmed that inflation is still on the decline. The core (ex-food & energy) CPI (retail inflation) is currently at 3.9% y/y. That's down from 2022's summer high of 6.6%. Core PPI (wholesale inflation) is at 1.8% y/y, also down from 2022's summer peak of 8.2%.
Although, the Fed's preferred inflation gauge is the Personal Consumption Expenditures (PCE) index. That too showed inflation continuing to fall at 3.2% y/y vs. their peak of 5.3%. We'll get that report on February 29. But PCE should follow the same trajectory as this week's CPI and PPI reports. So all eyes will be on those.
Even though the Fed expects core PCE inflation to fall to 2.4% this year, and 2.1% next year, and they expect to make 3 rate cuts (presumably 25 basis points each), they have signaled they are not likely to begin cutting in March (which is their next Fed meeting).
Debate on whether they begin cutting in May or June (the next 2 meetings following March), is heating up. So too is the question of how big the cuts will be this year. While the Fed is still only forecasting 3 cuts, many in the market are expecting 4-5 cuts (100-125 basis points total).
In spite of not knowing either of the above, the market has decided it doesn't matter so much, since rate cuts are coming, and that's all that's important.
In the meantime, inflation continues to fall, interest rates will soon do the same, job growth is robust, the economy is resilient, personal incomes are hovering near all-time highs, consumer spending is strong, and so are corporate profits.
Add in the cyclical tendencies of the 4-year Presidential cycle which shows that year 4 (that's this year) is the second-best year of all four years (second only to year 3 which was last year), and you have a recipe for another great year for stocks.
So make sure you're taking full advantage of it.
See you tomorrow,
Executive Vice President, Zacks Investment Research
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