Stock bulls hope to remain in control after pushing the S&P 500 to a new record high again last week and above the 5,000 milestone for the first time ever! Bulls continue to focus on positive data that indicates the long-dreaded “lagging effects” of tighter Federal Reserve monetary policy haven’t pushed the economy or earnings into recessions.
CPI
The big debate now is whether growth is too strong, running the risk of reigniting inflation. That will put a spotlight on the January Consumer Price Index (CPI) coming up on Tuesday. Bulls will be looking for another decline in the so-called “core” rate, which strips out food and energy and is one of the Fed’s preferred gauges.
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December headline CPI was up +3.4% year-over-year, versus +3.1% in November, and core CPI was up +3.9% year-over-year, versus +4.0% in November.
Investors are also anxious to see January Retail Sales on Wednesday. December results came in unexpectedly strong, with sales rising +0.6% but economists forecast a pullback into negative territory of around -0.2% in January. Softer reads on both CPI and Retail Sales will help strengthen the argument for Fed rate cuts to begin sooner rather than later. Of course stronger than expected reads could again cause Wall Street to reevaluate how low interest rates will be lowered by the end of 2024 and create more headwinds for the bulls.
Traders are currently giving just 16% odds of the first rate cut coming at the March 19-20 Fed meeting and see around 52% odds of a rate cut at the April30-May 1 meeting, according to CME Group’s FedWatch tool.
Earnings
Turning to earnings, at this point in the Q4 2023 season, S&P 500 companies are on track for earnings growth of nearly +3%, up from +1.6% the week before. Bulls note that Q4 is set to be the second quarter in a row of positive earnings. Earnings gains are expected to be even larger in the quarters ahead, with analysts currently forecasting earnings growth of +4.0% in Q1 2024 and +9.1% in Q2 2024. Full-year 2024 growth is pegged at nearly +11%.
Earnings highlights today include Arista Networks and Michelin. Later in the week we will hear earnings reports from Coca-Cola, MGM, Airbnb, Kraft Heinz, Cisco, John Deere, Coinbase, and DraftKings to name a few.
Can CPI Become a Turning Point?
Wishing you a great week!
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