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Market Trends: A Celebratory Week for Stocks
Major stock indexes saw gains for the fifth consecutive week, marking the second anniversary of the current bull market. The S&P 500 (SPX) and the Dow Jones Industrial Average (DJIA) increased by 1.11% and 1.21%, respectively, achieving new record highs. The Nasdaq Composite (NDAQ) and the Nasdaq-100 (NDX) also performed well, climbing 1.13% and 1.18%, and both are now just under 2% from their all-time peaks.
The Bull Market Reaches an Important Milestone
The S&P 500 has surged 60% since its low on October 12th, 2022, driven by excitement around AI technology and the robust performance of the U.S. economy. While this year has seen more volatility in tech stocks, the broader market has expanded, suggesting potential for further growth. Notably, corporate profits have outperformed analysts’ forecasts, reaching record levels in the last quarter.
On average, bull markets last between 3 to 4 years, indicating that this rally might continue. This 60% gain aligns with historical averages for the first two years of past bull markets, yet typically, gains cool off in the third year. Ultimately, the continuation of this bull market will depend on factors like economic growth, interest rates, and corporate profits.
Soft Landing Remains Possible
This past week, various economic data took center stage, along with speeches from Federal Reserve members and the release of the September Federal Open Market Committee (FOMC) meeting minutes, which captured investor attention.
The week started off poorly for stocks, as the chances of a significant interest-rate cut decreased due to stronger-than-expected jobs data that highlighted the resilience of the U.S. economy. While this strength fueled optimism for a soft landing, it also raised concerns that Fed policymakers might slow or pause their easing efforts. Thursday brought a slightly higher than expected consumer price index (CPI) along with an increase in jobless claims, creating more uncertainty about the economy’s health and complicating the outlook for monetary policy.
However, Friday’s modest producer price index data, which acts as a predictor for consumer inflation, revived hopes that the Federal Reserve is on track. The FOMC minutes indicated that most committee members favored a 0.5% rate reduction, as they believed inflation risks have lessened while job market threats have increased. Currently, markets are anticipating a 0.25% interest rate cut in November.
Bank Earnings Boost Market Mood
The discussion around the Fed and economic data shifted focus on Friday as major banks reported their quarterly earnings. The earnings season kicked off with releases from JPMorgan Chase (JPM), Wells Fargo (WFC), and Bank of New York Mellon (BK), all delivering results that surpassed expectations, paired with optimistic management insights.
Analysts have grown more positive regarding near-term bank performance due to projected revenue boosts from increased economic activity as interest rates potentially drop. This strong start to the Q3 earnings season reassures investors because banks are seen as both indicators and foundational pillars of the economy. JPMorgan’s positive outlook regarding consumer and corporate health in what it terms a “Goldilocks economy” also lifts investor sentiment.
Stocks in the Spotlight
¤ The Financials sector has been one of the best performers among S&P 500 sectors over the last year, supported by strong results from banks and financial companies. In the past week, Wells Fargo (WFC) soared over 6% and JPMorgan Chase (JPM) rose nearly 5%, propelling the KBW Bank Index to its highest point since April 2022.
¤ Positive economic news contributed to a rally in tech stocks, especially semiconductors. Nvidia (NVDA) gained 6.1% following a wave of analyst upgrades and reports from chip manufacturers indicating strong demand for Nvidia’s AI products.
¤ Super Micro Computer (SMCI) jumped over 13% last week after announcing a new liquid cooling solution for data centers, positioning itself well in a booming market. The company is currently exceeding shipments of over 100,000 AI GPUs per quarter, pointing to a robust demand that could yield substantial revenues.
¤ Taiwan Semiconductor Manufacturing (TSM) further boosted optimism in chip stocks with a remarkable year-over-year growth rate of 39% in September, significantly surpassing analyst projections.
¤ Conversely, Tesla (TSLA) was the worst performer in the S&P 500 last week, dropping almost 12%. The decline followed Tesla’s presentation of its autonomous taxi, the “Cybercab,” and a larger “Robovan.” Nonetheless, analysts and investors found the showcase lacking in concrete details and timelines.
¤ In contrast, Uber Technologies (UBER) enjoyed a nearly 16% surge last week, reaching an all-time high, as investor concerns eased following Tesla’s underwhelming robotaxi reveal. Analysts from Jefferies opined that Tesla’s lackluster offering is a positive indicator for Uber.
¤ Fastenal (FAST) witnessed a jump of over 10% after reporting Q3 revenues and earnings that exceeded analyst expectations.
¤ Amazon (AMZN) shares increased 3.5% last week after its October Prime Day yielded record sales and items sold. Following the annual Amazon Day Symposium, Evercore ISI expressed increased confidence in AMZN’s performance in the large-cap market.
¤ Alphabet (GOOGL) experienced a decline of 2.6% as concerns regarding a potential antitrust breakup weighed on the stock. The U.S. government has shown renewed interest in separating Alphabet’s advertising and Android divisions to mitigate its market power. Although Alphabet is likely to contest any breakup decision, potentially leading to an extended legal battle, some analysts believe that separating Android could ultimately benefit shareholders.
Looking Ahead: Earnings and Dividends
The Q3 2024 earnings season is underway, with several notable companies poised to announce their financial results this week. These include key players in the financial sector, such as Bank of America (BAC), Citigroup (C), Goldman Sachs Group (GS), and Morgan Stanley (MS).
Furthermore, major companies from various industries like Johnson & Johnson (JNJ), UnitedHealth (UNH), United Airlines Holdings (UAL), ASML Holding (ASML), Abbott Laboratories (ABT), Netflix (NFLX), Taiwan Semiconductor Manufacturing (TSM), and Procter & Gamble (PG) will share their quarterly results this week.
Additionally, ex-dividend dates are approaching this week for dividend-paying companies such as AbbVie (ABBV), Abbott Laboratories (ABT), PNC Financial (PNC), EOG Resources (EOG), Procter & Gamble (PG), and Colgate-Palmolive (CL).
For more exclusive market insights and analysis by Yulia Vaiman from TipRanks Macro & Markets, click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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