Weekly Market Recap: Equities Extend Gains Amid Fed Speculation and Sector Dynamics

Market Overview

Equities experienced volatility but closed higher for the fourth consecutive week. Positive factors included a rebound in manufacturing, a strong employment report, and impressive earnings from Meta (META) and Amazon (AMZN). Notably, industrial companies such as Parker-Hannafin (PH), Eaton (ETN), and Trane Technologies (TT) contributed to the market's upward trend.

In January, growth sectors like Communication services (+4.8%) and Technology (+3.9%) led, with Netflix (NFLX) and NVIDIA (NVDA) being notable gainers. However, the small-cap Russell 2000 Index faced challenges due to a slightly hawkish Fed tone and concerns over commercial real estate, leading to a pullback in regional banks.

Investor sentiment, as per the American Association of Individual Investors (AAII) survey, remained bullish, with a notable increase in the percentage of bulls.

Fixed income saw a rebound in the Bloomberg Aggregate Bond Index amid a hawkish Fed narrative, with high yield bonds benefiting but lagging behind the benchmark. The U.S. Treasury Department's quarterly borrowing needs were revised lower, impacting short-term interest rates.

Commodities experienced mixed movements, with energy prices declining, gold struggling to break resistance, and the dollar influencing the precious metal's performance.

Federal Reserve Insights and Economic Roundup

The Federal Open Market Committee (FOMC) minutes indicated a better balance between employment and inflation goals. Payrolls surged 353k in January, the largest monthly gain since last January. The job openings report highlighted solid holiday demand, while consumer confidence rose. Factory activity climbed to a 15 month high at the start of the year, fueled by the strongest orders growth since May 2022.

The Week Ahead

It’s a light week for economic data but earnings will continue with 100 members of the S&P 500 reporting. Data coming this week includes the Purchasing Managers’ Index (PMI) Composite, S&P Global PMI Services, Institute for Supply Management (ISM) Services, Trade balance, Consumer credit, and Initial and continuing claims, among others.