Weekly Market Update: March 4, 2024

Alex Ralicki |

Corporate America did not disappoint during fourth-quarter earnings season. To summarize, with nearly all of the S&P 500 companies having reported results as of press time, the vast majority exceeded consensus revenue and earnings-per-share forecasts. It marked the second-straight quarter of profit gains for the S&P 500 Index and, maybe more importantly, company prognostications kept the forecasts for high-single-digit earnings growth in 2024 in place. We think sustained profit gains will be needed to justify the high price-to-earnings multiple for the index.

The positive impact of the anticipated artificial intelligence (AI) revolution on the stock market’s performance continues. Wall Street was eagerly awaiting the quarterly results of NVIDIA, which produces the high-powered memory chips to run AI platforms, and the semiconductor giant delivered impressive profit growth. This lifted the technology sector and the major averages to record highs, reminding market pundits of the dot.com euphoria that once captivated Wall Street. The NVIDIA outlook suggests that the AI-powered surge in the equity market has more room to run.

The U.S. economy continues to exceed expectations. The unprecedented stimulus measures coming out of the pandemic, which flooded the financial system with liquidity, the still-tight labor market, and the overall downward trend in inflation continue to support consumer spending. This backdrop puts less pressure on the Federal Reserve to pivot on the interest-rate front. It should be noted that the January reading on the Personal Consumption Expenditures Price Index, the assessment of inflation most closely monitored by the Federal Reserve, was due shortly after we went to press.

Minutes from the latest Federal Open Market Committee (FOMC) meeting showed more-hawkish senior bank officials. Our sense is that the central bank does not want to reverse monetary policy course prematurely and risk seeing price growth reaccelerate as it begins to cut rates. This scenario proved problematic for the lead bank and the economy in the late 1970s.

Conclusion: The major equity averages were at record highs as earnings season drew to a close, fueled by the AI buzz and the expectation that the Fed will begin loosening monetary policy later this year. We still think a portfolio consisting of high-quality stocks and cash is the best way to play this extended market. 


Source : ValueLine.com