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Stocks closed solidly higher yesterday. The tech-heavy Nasdaq led the way with a gain of 1.11%. But the small-cap Russell 2000, and the mid-cap S&P 400 were not far behind with gains of 1.02% and 0.92% respectively. After 3 down weeks in a row (4 for
Kevin Matras   
Profit from the Pros
By Kevin Matras
Executive Vice President
Zacks Investment Research

Stocks Closed Higher Yesterday, More Earnings On Tap Today

Stocks closed solidly higher yesterday. The tech-heavy Nasdaq led the way with a gain of 1.11%. But the small-cap Russell 2000, and the mid-cap S&P 400 were not far behind with gains of 1.02% and 0.92% respectively.

After 3 down weeks in a row (4 for the Nasdaq), the markets are ripe for a bounce. And yesterday's rally could very well be just the beginning.

Going into yesterday, most of the indexes were in 'pullback' territory (defined as a decline between -5% and -9.99%).

From their all-time high closes last month, the Dow fell by -4.57%, the S&P by -5.46%, and the Nasdaq by -7.06%. The small and mid-caps (from their recent high closes) fell by -5.61% and -6.88%.

But pullbacks are common. Every bull market has them. In fact, stocks usually pull back about -5% roughly 3-4 times per year.

And pauses like these help refresh and strengthen the market before their next leg up.

The timing for a rebound is perfect too as earnings season kicks into gear this week. And that's because stocks typically go up during earnings season.

Stocks soared last earnings season. And there's plenty of reason to believe we'll see the same again this time. (Quite frankly the earnings seasons for the rest of the year look promising given the strength in both sales and earnings estimates with Q1'24 expected to show earnings up 2.2% and sales up 3.4%; Q2 is expected to show earnings up 9.0% and sales up 4.5%; Q3 is expected to show earnings up 7.1% and sales up 5.0%; and Q4 is expected to show earnings up 12.3% and sales up 5.5%.)

Between today and the rest of the week, we'll hear from 834 companies, including Tesla, Visa and Texas Instruments today, Meta, IBM and ServiceNow tomorrow, and Microsoft, Alphabet and Intel on Thursday, amongst many others.

On the economic report front today, we'll get the PMI Composite report, New Home Sales, and the Richmond Fed Manufacturing Index.

It'll actually be a very busy week of economic reports all week. But the report everybody is really waiting for is Friday's Personal Consumption Expenditures (PCE) index, which is the Fed's preferred inflation gauge.

The latest CPI and PPI inflation reports showed disinflation slowing. And while the PCE is likely to show the same, the question is to what extent? Or does the PCE show something different, and could we start to see inflation start easing again?

Either way, the odds are pretty close to zero that the Fed cuts on May 1. And the consensus is that the first rate cuts won't come until September.

But since the Fed insists it will remain data dependent, all eyes will be on Friday's inflation report (as well as every subsequent inflation report until the cuts begin).

In the meantime, we'll see if the market can build on yesterday's gains.

See you tomorrow,

Kevin Matras

Executive Vice President, Zacks Investment Research


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