Last Week
What a difference a week makes. One could simply reverse the narrative from last week’s commentary, “Rate Concerns Rising,” as tame inflation data led to a downtick in rates and the best weekly performance by stocks since the post-election rally in November 2024.
On Monday, trading was off to a rocky start, but a late afternoon rally lifted the market into the green as traders somehow intuited that the pending inflation data would prove benign. Indeed, Tuesday morning’s release of the PPI was below expectations, as did the CPI on Wednesday. Following the latter report, stocks enjoyed their best intraday advance since November 6, 2024, with the bond market also joining the party. The favorable inflation data provided renewed hope that the Federal Reserve will be able to ease monetary policy in 2025.
Strong quarterly results from the major banks helped fuel the rally, as higher earnings and lower interest rates are the ingredients for rising share prices. Fourth-quarter earnings growth estimates now call for a healthy 12.5% advance, which would be the highest year-over-year growth rate since the fourth quarter of 2021 rebounded from the pandemic shutdowns in 2020.
The S&P 500 advanced 2.9%, the tech-heavy Nasdaq Composite climbed 2.5%, while small caps led the leaderboard, gaining almost 4%. Advancing issues outnumbered decliners by nearly 5-1, and every industry sector finished in the green. The Oil & Gas sector spiked over 6%, as the underlying commodity prices continued to advance as more sanctions against Russia emerged.
Friday marked the last day of trading during Biden’s presidency. The 55% gain over the four years registered as the fourth best in history during a presidential term.
Nothing good happened on the Chicago Sports scene during Biden’s presidency, but we do not hold him responsible.
This Week
It will be another holiday-shortened trading schedule as Monday marks Martin Luther King Jr. Day.
The economic calendar is light, with Friday’s release of the Manufacturing and Services Purchasing Manager Indexes in focus. The lengthy trend of expansion in the Services sector and contraction in the Manufacturing sector is expected to continue.
Earning’s season will pick up its pace, with 43 S&P 500 companies reporting fourth-quarter results, including Netflix Inc (NFLX), The Procter & Gamble Company (PG), Johnson & Johnson (JNJ), American Express Company (AXP), and Verizon Communications Inc (VZ).