Stock Market Continues to Reach New Record Highs
The stock market has been on a relentless upward trajectory, reaching new record highs week after week. Both the S&P 500 and Nasdaq ended last week at their highest levels ever, marking a historic milestone. According to research from Deutsche Bank, the S&P 500 has risen for 16 out of the last 18 weeks, a feat that hasn’t been seen since 1971.
This week, all eyes are on Federal Reserve Chair Jerome Powell’s testimony on Capitol Hill and the release of the February jobs report, as they will put the stock market’s roaring rally to the test. Additionally, updates on economic activity in the services sector and job openings are scheduled, providing further insight into the state of the US economy.
Fed Chair Powell’s testimony is highly anticipated by investors, who will be listening closely for updates on the overall state of the economy, the fight against inflation, and any indications of when the central bank may begin cutting interest rates. Bloomberg data shows that markets are currently pricing in three interest rate cuts this year, starting in June. This aligns with recent commentary from Chair Powell and projections from the Fed itself. The Federal Open Market Committee will also announce its latest policy decision and summary of economic projections on March 20.
The labor market is another crucial factor in the stock market’s performance. With inflation showing signs of slowing down, economists believe that a resilient labor market will be key to avoiding a recession. This week, new jobs data will be released, including updates on wages and job openings. The highlight will be the February jobs report, which is expected to show that 190,000 nonfarm payroll jobs were added to the US economy last month, with the unemployment rate remaining flat at 3.7%.
As earnings season comes to a close, it is worth noting that the S&P 500 is projected to have earnings growth of 4% in the fourth quarter compared to the same period last year, according to FactSet data. This marks the second consecutive quarter of earnings growth for the benchmark index. What is particularly encouraging is that the outlook for earnings growth in the current quarter is not deteriorating at its usual pace. Analysts have only revised down earnings estimates by 2.2% for the current quarter, compared to the average of 2.9% over the past 20 years.
Despite initial concerns about uncertainty surrounding the Federal Reserve’s interest rate cut path and election fears, the stock market has defied expectations. Both the S&P 500 and Nasdaq Composite had their best February since 2015, largely driven by blowout earnings reports from Big Tech companies. As a result, several Wall Street strategists have raised their year-end targets for the S&P 500. Historical data also suggests that stocks are likely to continue their upward trend. Research from Carson Group shows that in 28 out of 31 instances since 1950 when the S&P 500 started the year positive in January and February, it delivered positive returns over the next 12 months. On average, a positive start to the year resulted in a return of 19.9%.
Looking ahead, investors will closely monitor economic data releases and earnings reports from consumer-facing brands such as Target, Costco, and Kroger. These reports will provide further insights into the health of the economy and consumer sentiment, which are crucial factors in sustaining the stock market’s record-breaking rally.
In conclusion, the stock market’s upward trajectory shows no signs of slowing down. With a positive outlook for earnings growth, a resilient labor market, and expectations of interest rate cuts, investors remain optimistic about the future. However, as always, it is important to closely monitor economic indicators and corporate earnings to make informed investment decisions.