NOSE BLEED TERRITORY OR NOT?

DJIA: 52-wk: +13.94% YTD: +2.56% Wkly: +1.43%

S&P 500: 52-wk: +19.88% YTD: 3.96% Wkly: 1.38%

NASDAQ: 52 wk: +30.17% YTD: +4.11% Wkly: +1.12%

Communication Services Select Sector SPDR: 52-wk: +37.01% YTD: +9.74% Wkly: +2.65%

EMPLOYMENT DATA:

Friday’s numbers were a blowout, with nonfarm payrolls expanding by 353,000, twice what economists had forecast, while average hourly earnings jumped by 0.6% in the month and 4.5% from a year ago.

BIG TECH STOCKS:

Once again carried Wall Street to a record Friday, even though the majority of stocks fell amid worries about the downside of a hot economy. Big gains for Meta and Amzn helped drive the S&P 500 up by 1.1 percent to its latest high. It’s in a torrid run where it’s climbed in 13 of the last 14 weeks.

IN THE END THIS WEEKS EARNINGS RACE WAS A DRAW:

META & AMZN up, AAPL & GOOG off and MSFT flat. META & AMZN: Soared 20.3% and 7.9% respectfully. They are both members of a small group of Big Tech stocks known as the “Magnificent Seven” responsible for the majority of Wall Street’s run to a record. Their huge gains have set expectations very high for their growth, which they need to meet to justify the big runs for their stock prices.

RATE CUTS:

Traders had already pushed out bets for the timing of the first Fed rate cut to May from March earlier last week. Following Powell’s warning and after the jobs report, traders shifted some bets even further out to June, according to data from CME Group.

HOW TO MAKE THE MOST OF TODAY’S MARKET

Valuation & Earnings: Tied to the economic and interest rate outlook is the question of stock market valuations that still look attractive given the expected interest rate trajectory.

The S&P 500 index is currently trading at 20.4X forward 12-month earnings estimates, up from 15.6X at the end of September 2022 but down -15.6% from the peak multiple of 24.1X some time back. It is hard to consider this valuation level as excessive or stretched, particularly given the coming Fed easing cycle.

Let's talk about the Bull case first.

Inflation & the Fed: The outlook for inflation and what that means for Fed policy is the biggest point of difference between market bulls and bears at this point in time. The bulls see the inflation issue as effectively resolved at this stage, with the steadily decelerating trend of the past year putting us on track to reach the Fed's desired level in the coming months. Let's see what the Bears have to say in response.

The Market's Fed Exuberance: The consensus view on inflation is that we are firmly on track to reach the Fed's target inflation level later this year. With inflation no longer a lingering issue on the macro horizon, the majority of market participants expect the Fed to promptly change course and start easing policy. The odds of a March rate cut had started coming down even before the Fed effectively took it off the table, but many in the market continue to see the easing cycle getting underway in the following session.

CHANGE OF PACE BUT IMPORTANT FOR YOUR HEALTH:

Are Ultra-Processed Foods Fattening? They Are for Company Profits

A different way of classifying food could turn into a problem for makers of lucrative snacks and ready meals. The stock market gets more interesting from here.

— Richie

Join Richie for a free TradeZero Live Session every Friday by clicking here.

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