Blowout Earnings Report from Nvidia Sends Stocks to Record Highs, Inflation Data to Test Rally
Last week, the stock market experienced a surge in record highs following an impressive earnings report from Nvidia, a leading AI company. However, this rally may face a challenge in the coming days as new inflation data is set to be released. The S&P 500 and Dow Jones both ended the week with a 1% increase, while the Nasdaq Composite saw a 0.6% gain. Notably, both the S&P and Dow closed Friday at record highs.
The main concern for the market in the upcoming week will be the release of the Personal Consumption Expenditures (PCE) index, which is the Federal Reserve’s preferred inflation gauge. This data, scheduled for Thursday, will provide insight into the current level of inflation. Additionally, consumer confidence and updates on the manufacturing sector will be closely monitored during the week.
One significant event to watch out for is the quarterly reports from several companies, including Salesforce, Lowe’s, Macy’s, Okta, and Best Buy. These reports will shed light on the performance of the retail sector and provide an indication of consumer spending trends. Simeon Siegel, a senior retail analyst at BMO Capital Markets, emphasized the importance of understanding whether consumer spending is losing momentum. So far, quarterly results have shown that Americans are still spending on discretionary goods, despite concerns about inflation impacting consumer behavior.
The upcoming inflation report is highly anticipated due to its potential impact on the market. Economists expect the annual “core” PCE, which excludes food and energy categories, to have reached 2.4% in January. This would mark a notable increase from the previous month’s 0.4% projection. The rising inflation numbers have raised concerns that inflation may be more persistent than initially anticipated. Bank of America’s economics team highlighted that this increase would push the six-month and three-month annualized inflation numbers back above the Fed’s 2% target.
Morgan Stanley’s chief US economist, Ellen Zentner, warned that an uptick in monthly price increases could lead to a “bumpy” inflation picture in the coming months. As a result, markets have adjusted their expectations and are now pricing in three interest rate cuts for 2024, aligning with the Fed’s recent forecast.
Despite the market reaching record highs, there is no indication of euphoria or an overstretched peak, according to Citi’s US equity strategy team. The team uses the Levkovich Index, which considers factors such as investors’ short positions and leverage, to gauge market sentiment. The current reading of 0.33 suggests that sentiment has not reached euphoria levels, which are typically followed by market drawdowns.
Scott Chronert, managing director at Citi, acknowledged that strong momentum could temporarily push the S&P 500 above their year-end target of 5,100. However, he emphasized the need for more earnings upside and macro tailwinds, such as lower interest rates, to sustain further market growth.
Looking ahead, the week is filled with economic data releases and earnings reports from various companies. These events will provide valuable insights into the state of the economy and the performance of different sectors. Investors will closely monitor the inflation data, consumer confidence, and retail sector reports to assess the market’s future trajectory.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. The author is not affiliated with any of the companies mentioned in the article.