U.S. and international equities continued their upward trajectory, marking a fifth consecutive week of gains. The S&P 500 Index reached new highs, surpassing 5,000 points. Investor focus shifted from the Federal Reserve's pause to positive economic data and earnings surprises.
Earnings season, initially shaky, has strengthened, with nearly 60% of S&P 500 companies reporting. The average earnings surprise is nearing 4%, approaching the long-term average of 6-7%. Excluding financials, the earnings surprise exceeds 6%. LPL Research predicts a 5% growth in S&P 500 earnings, supported by the resilient economy.
Investor sentiment, according to the American Association of Individual Investors survey, remains bullish, with nearly 50% expressing optimism.
Federal Reserve Insights and Economic Roundup
In fixed income, the Bloomberg Aggregate Bond Index faced headwinds amid a hawkish Fed and robust economic data. Concerns arose about waning foreign demand for U.S. Treasuries, but a record 10-year auction saw strong foreign buying, indicating heightened international interest due to geopolitical risks.
Commodities experienced mixed performance, with energy prices rising and gold struggling amid a stronger dollar and increasing bond yields.
The ISM Services Report showed growth in January, with the composite exceeding 53. New orders increased, but rising prices paid index raised concerns about potential inflation, likely temporary due to geopolitical conditions.
India emerged as a bright spot, with a strong PMI reading of 61.2 in January, contrasting with shrinking business activity in Germany, France, and the Eurozone.
The Week Ahead
Upcoming economic data includes the Treasury budget, Consumer Price Index, NFIB Small Business Index, and employment-related figures. Investors will closely watch indicators such as retail sales, housing data, and sentiment indices for further insights into economic trends.