A strong earnings report released by the AI darling Nvidia has caused the stocks to record highs last week. While the S&P 500 and Dow Jones increased by 1%, the Nasdaq Composite only increased by 0.6%. However, the S&P and Dow Jones hit record highs by the end of the week.
This week would see the release of the PCE Index, the Federal Reserve’s favored measure of inflation, on Thursday. Some other updates to know this week would be consumer confidence throughout the week and the updates on the manufacturing sector.
Look out for the quarterly reports from these companies as well:
- Salesforce (CRM)
- Lowe’s (LOW)
- Macy’s (M)
- Okta (OKTA)
- Best Buy (BBY)
What to Know This Week: All About the Market
When the CPI was released last time before the stock market opened, it caused a lot of movement and selling in the stock market. With another inflation report set to be released on Thursday, the same thing may happen again.
According to economists, what to know this week is the “core” Personal Consumption Expenditure (PCE) Index, which does not include the more validation categories of food and energy. For January, economists predict the core PCE to be 2.4% annually. In comparison, they expect a 0.4% increase in the core PCE from last month.
If prices increase by 0.4% in a month, it’s higher than the 0.2% rise seen the previous month, suggesting that the inflation might stay higher than expected.
Christopher Waller, Governor of the Federal Reserve, had recently delivered a speech in Minneapolis where he talked about how the governor required data from a few months before he could move forward with introducing rate cuts.
According to economists at Bank of America, this 0.4% price increase would bring the annualized inflation rates for the six months and three months back above the Fed’s target of 2%.
Ellen Zentner, top US economist at Morgan Stanley, recently said that if the prices keep increasing weekly, it could mean a rocky inflation situation in the upcoming months. Right now, the financial markets expect the Federal Reserve to make three interest cuts this year, which is in line with what the Fed has recently predicted.
This number starkly contrasts the expected number of six rate cuts, which has changed according to the Bloomberg data.
The fourth quarter earnings season is winding down; however, many companies still have yet to report, especially those in the retail sector. Throughout the week, there will be a closer look at how consumers are doing with earnings reports from Macy’s, Best Buy, TJX, and more.
Simeon Siegel, senior retail analyst at BMO Capital Markets, said he will focus on whether consumer spending is going down or not. So far, he says that the latest quarterly results show that Americans still spend on things they want despite the rising prices of essential items.
He said that some might think due to increasing prices there will be less amount of spending on non-essential items, however, the recent results show that is not the case.
Is the Nirvana in Sight for the Market?
Investors wonder if the markets have hit the highest point, especially with major averages trading at record levels and Nvidia’s strong earnings boosting the AI sector.
According to the equity strategy team at US Citi, it is not yet time to worry about the market reaching its highest point.
Scott Chronert, managing director at Citi, recently wrote to his clients that the market has not reached a nirvana or euphoria yet.
Chronert’s team uses the Levkovich Index, which helps them understand the market sentiment, which is currently reading at 0.33, below the 0.38 level, showing that the markets might be reaching an extreme peak.
In the past, the times when the market reached this all-time high often resulted in market declines afterward. Chronert has said that the market may rise above Citi’s year-end target of 5100 for the S&P 500 in the short term due to the current strong momentum.
However, to keep the market rising in the long term, more factors like higher earnings and positive economic conditions such as lower interest rates might be necessary.
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