Wall Street Closes Another Positive Week, with S&P 500 Hitting Record High
Wall Street wrapped up another positive week, with the S&P 500 closing Friday above 5,000 for the first time ever. The Nasdaq finished less than 0.5% away from its November 2021 record-high close. It was another big week for Club company earnings, with Estee Lauder, Eli Lilly, GE Healthcare, DuPont, Linde, Ford, Disney, and Wynn Resorts all reporting. Twenty-one of the 32 portfolio names have now delivered their results this quarter.
Looking more broadly, according to FactSet, three-quarters of the 67% of S&P 500 companies that have issued their numbers reported upside earnings surprises, while just about two-thirds reported better-than-expected revenue.
It was a pretty light week in terms of economic data releases, though we did get a favorable ISM Services number on Monday. Things will pick up next week with several closely watched macroeconomic updates, including two key government inflation reports. While no Club earnings are scheduled to report earnings in the week ahead, 61 companies in the S&P 500 will deliver their latest quarterly results.
The Main Event: Consumer Inflation
Consumer inflation will take center stage next week when the January Consumer Price Index (CPI) is released on Tuesday. Economists are looking for headline CPI to advance 2.9% year over year and core CPI, including food and energy prices, to gain 3.8%. While the core PCE (personal consumption expenditure) price index is the Federal Reserve’s preferred measure of inflation, CPI will provide valuable insight into what areas of the economy are seeing sticker price pressures. That, in turn, can help forecast whether there’s any chance for a March interest rate cut.
Right now, the market odds favor a Fed rate reduction in May or June. A cooler core CPI print, closer to the Fed’s 2% target inflation rate, would likely be taken as a positive by the stock market. Really weak data could be less well received on the thought the Fed held rates high for too long. We, however, do not believe the latter to be the case.
Wholesale Inflation and its Impact on Consumers
On Friday, the January Producer Price Index (PPI) will be released, shedding light on wholesale inflation. Economists are looking for a year-over-year headline PPI increase of 0.6%. While the CPI carries more weight because it reflects the prices consumers pay, the PPI is important because it provides insight into input costs that companies pay. A greater-than-expected rise in input costs could lead to companies trying to protect profits by passing those higher costs through to consumers, which would be a negative in terms of getting the rate of inflation down.
Retail Sales as a Gauge of Consumer Health
On Thursday, January retail sales will be released, providing a gauge of consumer health. With nearly 70% of U.S. gross domestic product (GDP) based on private consumption, consumer spending and shopping remaining relatively resilient is crucial to avoiding a recession. Economists are expecting a 0.1% monthly decline, given the comparison with December, which is the last month of the holiday shopping season.
Indicators of Manufacturing and Housing Market
Thursday will also see the release of the January industrial production and capacity utilization report, offering insight into manufacturing and indirectly into consumer and business demand. On Friday, the January housing starts and building permits report will be of particular interest as the ongoing shortage of houses remains a key factor keeping prices high. Any indication of increased housing supply could be viewed positively.
Earnings Updates and their Real-Time Insight
While there will be a break from Club earnings next week, several non-portfolio companies are set to release their earnings, providing valuable insight into industry dynamics and the overall economy. As important as macroeconomic updates are, earnings releases offer more up-to-date information. While the reported numbers may be backward-looking, the information management teams share on their post-earnings conference calls are real-time and often provide insight into current market conditions.
Overall, the coming week will be crucial for investors as they keep a close eye on economic data releases and earnings updates to gauge the health of the economy and potential market trends.
Analyst comment
Positive news: Wall Street had another positive week, with the S&P 500 hitting a record high. Many companies reported better-than-expected earnings and revenue. The upcoming week will see important economic data releases, including inflation reports and retail sales.
Analyst prediction: The market is likely to remain optimistic, with investors closely monitoring economic data releases and earnings updates to assess the state of the economy and potential market trends.
