Stocks continued to build on their record levels Monday even as expectations for future interest rate cuts have become less optimistic.
After notching its first new closing high in more than two years on Friday, the S&P 500 celebrated the confirmation of its new bull market by adding another 0.2% to finish at 4,850 on Monday.
It's rare for the benchmark index to go so long without making an all-time high, but history suggests it could be quite bullish, notes Ryan Detrick, chief market strategist at Carson Group. In the 13 instances since 1957 when the market took more than a year to record a new all-time high, the S&P 500 was higher one year later 12 times – and by an average of 11.8%, Detrick found.
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The blue chip Dow Jones Industrial Average gained 0.4% Monday to 38,001, while the tech-heavy Nasdaq Composite rose 0.3% to 15,360.
Markets picked up Monday where they left off Friday when they were rallying at the end of a holiday-shortened week. Last week's sharply improved consumer sentiment reading on inflation is at least partly to thank for the new highs, notes Anthony Saglimbene, chief market strategist at Ameriprise.
"As long as inflation expectations remain contained, inflation itself should ebb to the Fed's target with time," Saglimbene writes. "We believe this is the broader market's take as well, contributing to Friday’s stock gains and helping the broader U.S. averages."
Stocks rallied into the end of last year on expectations that the Federal Reserve would cut interest rates faster than originally thought. But January's mixed economic data – and comments from Fed officials – diminished the market's optimism.
Interest rate traders now assign a 40% probability to the Federal Open Market Committee (FOMC) enacting its first quarter-point rate cut as soon as March, according to the CME Group's FedWatch Tool. That's down from 77% a week ago. Market participants should get a better bead on central bank thinking after the next Fed meeting later this month.
Earnings, econ data on tap
Netflix (NFLX), Tesla (TSLA) and International Business Machines (IBM) are just three of the big names on this week's earnings calendar. As one of the Magnificent 7 stocks, Tesla could ripple through the broader market. Meanwhile, long-suffering shareholders in IBM will be keen to hear what management has to say about generative artificial intelligence (AI).
Key economic indicators on tap this week include the release of fourth-quarter U.S. gross domestic product (GDP), and the personal consumption and expenditures (PCE) index, the Federal Reserve's preferred gauge of inflation that measures consumer spending.
Elsewhere in single-stock news, Gilead Sciences (GILD) tumbled Monday after the biotechnology giant reported disappointing results in a clinical trial of a lung cancer drug. GILD lost 10.2%, wiping out roughly $11 billion in shareholder value.
Although the latest news is a setback, Wall Street maintained its consensus recommendation on GILD as of Monday afternoon. Of the 32 analysts covering the stock surveyed by S&P Global Market Intelligence, 11 rate it at Strong Buy, five say Buy, 15 call it a Hold and one says Strong Sell. That works out to a consensus recommendation of Buy but with middling conviction.
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