Last Week
The seesaw action on Wall Street continued, with stocks snapping a two-week losing streak. President Trump’s tariff talk continued to dominate the news flow. The basic storyline reads that stocks drop when tariffs are announced and then recover when those tariffs are delayed. Slightly more delays than announcements, mixed inflation data, and strong corporate earnings, all combined to lift overall stock prices. Advancing issues outnumbered declining issues by a factor of 4-3; the S&P 500 gained 1.5%, the Nasdaq Composite surged 2.6%, while small caps treaded water. The bond market was quiet, with the yield on the 10-year Treasury steady just below 4.5%, while gold rallied and the dollar declined.
A favorable producer inflation report on Thursday offset Wednesday’s hotter-than-expected consumer price index report. Producer prices feed into future consumer prices and can be viewed as more forward-looking. In any event, inflation is proving sticky around the 3% level, and concerns over tariffs will make further improvement difficult.
The pattern of strong “beats” continued on the earnings front, with the growth rate increasing to 16.9% from 16.4% the week before. At this pace, it will be the strongest year-over-year quarterly earnings growth since the 2021 Q4 rebound from the pandemic’s depressed levels. Nine of the eleven industry sectors are reporting double-digit growth, with only the energy sector reporting a double-digit decline.
This Week
The markets were closed on Monday to celebrate the Presidents’ Day holiday (still officially “George Washington Day”). It will be holiday-shortened and data-light trading, with our current President, Donald Trump, likely dominating the headlines. The minutes from last month’s FOMC meeting will be released on Wednesday, in which we might get additional color on the Fed’s concerns over the possible inflationary impact of our new President’s policies. The economic data will include housing starts on Wednesday and existing home sales on Friday. High mortgage rates have been a stiff headwind for the housing market. While the Fed has remained tight with monetary policy based on the jobs market and inflation data, an unintended consequence has been the dislocations in the housing market, leading to elevated levels in the “shelter” component in the inflation data.
Earnings season winds down, with 40 S&P 500 companies, including retail giant Walmart (WMT), releasing earnings. Strong corporate earnings and stable long-term interest rates provide the foundation for a healthy stock market.
Friday will also feature the release of the purchasing manager’s consumer sentiment purchasing readings.
Our Chicago Sports Scene Sentiment Index has reached a record low. Clearly, this has been a winter of our discontent.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvestfunds.com.