Weekly Market Update: Equities Soar as Small Caps Lead - Record Highs for S&P 500 and Nasdaq

Market Overview: 

U.S. and international equities experienced a mostly positive week, with small caps leading and the Russell 2000 marking its best performance of the year. The S&P 500 and Nasdaq Composite reached record highs, fueled by the prospect of a soft landing in the economy, energy strength, and continued momentum in artificial intelligence. The growth-focused Russell 1000 Growth Index outperformed its value counterpart, driven by notable gains in technology, particularly NVIDIA, Meta in communication services, and Eli Lilly in healthcare. The market displayed a preference for expensive stocks based on the forward price-to-earnings ratio, favoring both growth and quality, as reflected in the MSCI USA Quality Index.   

Investor sentiment remains bullish, with the American Association of Individual Investors (AAII) survey indicating an increase in bullish sentiment to 46%. Neutral sentiment rose, while bearish sentiment declined, maintaining levels well above the long-term historical average. 

Federal Reserve Insights and Economic Roundup: 

In fixed income, the Bloomberg Aggregate Bond Index rebounded after three down weeks, supported by robust demand for investment-grade and high-yield corporate bonds. Despite rich valuations, the market absorbed new debt without negatively impacting credit spreads. The economic environment, marked by slowing growth, falling inflation, and steadier interest rates, remains broadly supportive of credit risk. 

Commodities experienced gains, with West Texas Intermediate prices rallying over 4%, natural gas rebounding, and gold challenging key resistance at $2,075. Economic indicators include a decline in consumer confidence in February, driven by concerns over the political climate, and an acceleration of inflation in January. Personal consumption expenditures reflected softer spending, potentially indicating a GDP below 1% in Q1. 

European inflation showed signs of improvement, declining in economically significant states in Germany, while the European Central Bank faces a dilemma over potential interest rate cuts. 

The Week Ahead: 

The upcoming economic calendar includes key data points such as Total Light Vehicle Sales, PMI Composite, durable and factory orders, ISM Services, JOLTS Job Openings, Federal Reserve Beige Book, unit labor costs, productivity, trade balance, consumer credit, hourly earnings, average workweek, manufacturing payrolls, nonfarm payrolls, and February Unemployment. Analysts anticipate further insights into the labor market, economic activity, and trade balances.