Weekly Market Update

The S&P 500 registered another strong week as the fourth quarter earnings season has been better than feared, while the disinflation narrative continues to gain momentum.  Entering this Q4 earnings season, expectations were quite low and while EPS (earnings per share) growth is on pace to contract roughly -5% year-over-year, results have not been as terrible as many had anticipated.  Furthermore, the consumer resilience theme that has underpinned “soft landing” optimism gained traction this week as Visa and Mastercard commented on strong payment volumes in January, American Express highlighted high consumer spending growth, and pending home sales for December rose for the first time in seven months.  This data dovetailed nicely with the personal consumption expenditures report showing core inflation decelerated to 4.4%, its lowest levels in 14 months, while the consumer sentiment survey indicated the lowest one-year inflation expectations since April 2021.  As a result, despite a trading glitch on Tuesday morning that created excessive volatility, the S&P 500 finished the week up another 2% and on track to finish January up over 5%, the best start to a year since 2019.

Next week will be chock full of potential market moving events.  The Federal Reserve will release its meeting announcements on Wednesday and is overwhelmingly expected to hike interest rates 25 basis points (0.25%).  However, the Jerome Powell press conference later that afternoon will be particularly important as in 2022 the Fed Chair seemed to go out of his way to pour cold water on stock market rallies.  The central banks for the European Union and the United Kingdom will also make monetary policy announcements, while OPEC meets next week.  There will also be a litany of data releases headlined by a pickup in big tech companies reporting Q4 earnings and Friday’s much anticipated jobs report.  Historically +5% gains in January for the S&P 500 bodes very well for the full year, but whether we hold this month’s impressive gains will depend heavily on how next week plays out.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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