Stocks surged to near record highs, with the S&P 500 finishing Friday at 4,959, its highest close ever. Despite a rocky week of trading, all three major indexes logged gains for the week. Initially, stocks slid following lackluster tech results from Microsoft and Alphabet, but blowout earnings from Meta and Amazon, combined with a stronger-than-expected January jobs report, sent stocks into rally mode. Despite concerns about inflation, the Fed’s decision not to cut interest rates in March boosted investor confidence.
Federal Reserve Chair Jerome Powell’s comments after the January Fed meeting poured cold water on investor hopes for a March interest rate cut, stating that the central bank needs “greater confidence” in inflation’s path lower. Economists believe the strong January jobs report strengthens the case for the Fed to wait to cut interest rates without pushing the economy into recession, despite concerns about inflation reaccelerating. Investors are now placing a roughly 20% chance on an interest rate cut at the March meeting, down from nearly 40% a day prior. This was attributed to strong corporate earnings that punctuated the week, reshaping sentiment amidst investor concerns about inflation.
Corporate earnings appeared to round a corner to end last week, with several tech giants, including Apple, Meta, Alphabet, Amazon, and Microsoft, posting significant earnings beats. With 104 S&P 500 companies slated to report earnings this coming week, investor focus will be on whether this trend of strong earnings beats will continue. Quiet on the economic front, investors will have few data points to dissect in the week ahead, with economic news limited to weekly initial jobless claims and an update on activity in the services sector. Overall, strong corporate earnings, combined with the Fed’s decision not to cut interest rates in March, contributed to a surge in stock values.