Easing inflation and rising optimism surrounding rate cuts sent stocks on a rally at the end of last year and the positive sentiment has been continuing. On Feb 9, the S&P 500 hit yet another milestone, breaching the 5,000 mark for the first time to close at 5,026.61 points.

The S&P 500’s rally has been continuing this year after a solid 2023 when it ended 23.9% higher. The index is now more than 6% higher on a year-to-date basis. A number of factors are boosting investors’ confidence, which has been helping Wall Street.

Robust economic data, slowing inflation, and expectations of multiple rate cuts this year, along with solid four-quarter earnings, have lifted investors’ sentiment.

U.S. GDP grew a solid 3.3% in the fourth quarter of 2023, surpassing estimates of a rise of 2%. Overall, U.S. GDP grew 2.5% in 2023, higher than 1.9% a year earlier.

Also, inflation has declined sharply over the past year, thanks to the Federal Reserve’s aggressive monetary tightening policy that saw it hike interest rates by 525 basis points to take its benchmark policy rate to the range of 5.25-5.50%.

Core CPI, which strips out volatile food and energy prices, fell to 3.9% annually in December from 4% in November. Also, core PCE inflation, the Fed’s favorite inflation gauge, increased a meager 0.2% month over month in December, while it increased 2.9% annually, the lowest annual rate of interest since March 2021.

Investors are now trying to gauge when the Federal Reserve will go for its first rate cut. Although Fed Chair Jerome Powell sounded a bit hawkish and said that a March rate cut is unlikely, investors are pricing in at least five rate cuts of 25 basis points each this year. Investors are now expecting the first rate cut in May.

Also, the fourth-quarter earnings season has turned out to be quite impressive. As of Feb 9, 338 companies on the S&P 500 Index have reported their quarterly results, with total earnings of these companies up 5% compared to the same period last year, while revenues are up 3.7%.

The optimistic scenario has also resulted in a solid rebound in consumer confidence. The Conference Board said that the U.S. consumer confidence level index rose to 114.8 in January, from December’s reading of 108, the highest since December 2021.

Our Choices

Given this scenario, it would be ideal to invest in S&P 500 stocks such as NVIDIA Corporation (NVDA Quick QuoteNVDA - Free Report) , American Express Company (AXP Quick QuoteAXP - Free Report) , Colgate-Palmolive Company (CL Quick QuoteCL - Free Report) , Meta Platforms, Inc. (META Quick QuoteMETA - Free Report) and Amazon.com, Inc. (AMZN Quick QuoteAMZN - Free Report) thathave a strong potential in 2024. These stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and assure good returns. You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA Corporation is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Over the years, NVDA’s focus has evolved from PC graphics to artificial intelligence-based solutions that now support high performance computing, gaming and virtual reality platforms.

NVIDIA has an expected earnings growth rate of 268.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. NVDA presently has a Zacks Rank #2.

American Express Company is a diversified financial services company offering charge and credit payment card products, and travel-related services worldwide. AXP offers business travel-related services through its non-consolidated joint venture, American Express Global Business Travel (the GBT JV).

American Express Company has an expected earnings growth rate of 13.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3% over the last 60 days. AXP currently carries a Zacks Rank #2.

Colgate-Palmolive Company’s business strategy closely defines efforts to increase its leadership in key product categories through innovation in core businesses, tracking adjacent categories’ growth and expansion into new markets and channels. Due to the shift of consumer preference to organic and natural ingredients, CL is expanding its Naturals range, including Naturals toothpaste.

Colgate-Palmolive Company has an expected earnings growth rate of 7.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.2% over the last 60 days. CL currently has a Zacks Rank #2.

Meta Platforms, Inc. is the world’s largest social media platform. META’s portfolio offering evolved from a single Facebook app to multiple apps like photo and video sharing app Instagram and WhatsApp messaging app owing to acquisitions. Along with in-house developed Messenger, these apps now form Meta’s family of products used by almost 3.96 billion people on a monthly basis as of Sep 30, 2023.

Meta Platforms has an expected earnings growth rate of 31.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11.2% over the last 60 days. META presently sports a Zacks Rank #1.

Amazon.com, Inc. is one of the largest e-commerce providers, with sprawling operations in North America, now spreading across the globe. AMZN’s online retail business revolves around the Prime program well-supported by the company’s massive distribution network. Further, the Whole Foods Market acquisition helped Amazon establish its footprint in the physical grocery supermarket space. AMZN also enjoys a dominant position in the cloud-computing market, particularly in the Infrastructure as a Service space, thanks to Amazon Web Services.

Amazon.com has an expected earnings growth rate of 39% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 14.2% over the last 60 days. AMZN currently sports a Zacks Rank #1.