Elite Six
Stocks were positive for the week as more Goldilocks economic data fueled investor optimism. Earlier in the week, the U.S. gross domestic product came at a 3.3% clip in last year’s fourth quarter, much stronger than the expected 2% gain. On Friday, the Bureau of Economic Analysis said that the core personal consumption expenditures (PCE) price index rose 0.2% for December and only 2.9% year-over-year. Once again, the data shows a strong economy with moderate inflation, solidifying the big bad bear scenario of surging costs and a recession as just a sinister fairy tale.
By the closing bell on Friday, the S&P 500 had posted a 1.1% gain, the Nasdaq Composite was 0.9% higher, and the Russell 2000 was +1.75%. Crude Oil jumped over 5%, leading to top sector performance from the Oil & Gas stocks. Advancing issues overwhelmed declining issues by a factor of almost 2.5-1. The bond market was exceptionally quiet, with the yield on the 10-year Treasury finishing essentially unchanged at 4.16%, having traded in a 9-basis point band during the week.
Corporate earnings reports were mixed, with Intel Corp (INTC), in particular, disappointing investors. Nevertheless, the expected decline in composite earnings improved slightly to -1.4% from -1.8% the week earlier. FactSet’s Earnings Insight, dated January 26th, illuminated the standout performers driving year-over-year earnings growth for the S&P 500 in Q4 2023. Noteworthy contributors include NVIDIA, Amazon.com, Meta Platforms, Alphabet, Microsoft, and Apple. Collectively, these elite six out of the “Magnificent 7” are poised to deliver a 53.7% surge in year-over-year earnings for the fourth quarter. In stark contrast, FactSet’s analysis reveals that excluding these six companies, the blended earnings trajectory for the remaining 494 companies in the S&P 500 indicates an anticipated fourth-quarter earnings decline of -10.5%.
The Chicago Maroons had a terrific weekend, beating the #2 rated Case Western Reserve University Spartans on Friday, and followed it up with a victory on Sunday versus the Carnegie Mellon University Tartans. Neither the Spartans nor the Tartans had an answer for the soaring Maroons, who certainly should climb the rankings when the next poll comes out!
Grounded
The action in the financial markets should be lively with earnings season in full swing and the Federal Reserve meeting. On the earnings front, 106 of the S&P 500 will be reporting results, including tech heavyweights including Apple Inc (AAPL), Amazon Inc (AMZN), Microsoft Corp (MSFT), Alphabet Inc (GOOGL), and Advanced Micro Devices Inc (AMD). The energy sector will also be in focus, with both Exxon Mobil Corp (XOM) and Chevron Corp (CVX) reporting on Friday. The decline in oil prices has led to sharply lower earnings from the energy companies, with a 30%+ decline forecasted for the quarter, and depressed share prices with single-digit average P/E multiples and robust dividend yields. Boeing Co (BA) is also reporting earnings next week when many of its planes and stock price are grounded.
The Federal Reserve is largely expected to hold interest rates steady and make only a subtle change to the policy statement. Still, Chairman Powell’s comments will be dissected for any hints of when the rate cuts will commence.
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