S&P 500 Has Its Best Week Since November Election: Markets Wrap

Recent market activity has shown a robust performance for the S&P 500, marking its best week since the presidential election in November. This positive trend comes just before the inauguration of Donald Trump as the 47th president of the United States.

Factors Influencing Market Sentiment

The S&P 500 index gained 1% on Friday, contributing to a weekly increase of 2.9%. Many sectors within the index registered gains. Major companies like Nvidia Corp. and Tesla Inc. led the way, while Intel Corp. saw a significant jump of over 9%, following news that it is a potential acquisition target. The sentiment was further bolstered by headlines indicating discussions between Trump and Chinese President Xi Jinping about trade issues, TikTok, and fentanyl, which may impact relations between the two largest economies in the world.

Market Rally Insights

Bonds also showed positive movement this week, with 10-year Treasury yields dropping approximately 15 basis points. Trump’s election has fueled market optimism, based on expectations of pro-growth policies from his administration, including tax cuts and potential tariff increases. In light of recent inflation data showing signs of cooling, many investors have reignited hopes of potential rate cuts from the Federal Reserve.

Craig Johnson from Piper Sandler commented on the situation, stating, "This week’s easing inflation data and a positive response to earnings from various financial firms have led to a rally in both bonds and stocks. Short-term oversold conditions alongside weak bullish sentiment are supporting the rebound of major indices from their primary upward trends." Meanwhile, Mark Hackett of Nationwide noted the encouraging signs in the market, suggesting that the balance between bullish and bearish investors is stabilizing.

Looking Ahead to Earnings Season

According to Hackett, as earnings season progresses, markets might exhibit fluctuating patterns. However, he believes that once earnings reports are released and the buyback period begins, bullish trends could re-establish dominance.

During this week, the Nasdaq 100 climbed 1.7%, while the Dow Jones Industrial Average increased by 0.8%. A leading index of major tech stocks, referred to as the "Magnificent Seven," surged by 1.8%. Bank stocks outperformed, driven by solid earnings, resulting in an 8.2% increase for the sector.

Technical Market Dynamics

The yield on 10-year Treasuries remained stable at approximately 4.61%, while the Bloomberg Dollar Spot Index rose by 0.3%. Crypto assets also gained traction, with Bitcoin reaching around $105,000.

Market experts have been reflecting on recent shifts. For example, Steve Sosnick from Interactive Brokers stated, "What a difference a week makes. Last Friday, stocks were in decline due to a positive jobs report, which highlighted how the equity market prefers rate cuts over a strong economy." Dan Wantrobski from Janney Montgomery Scott described the market conditions as ideal for a rally, where oversold situations coincided with favorable news.

Historical Market Performance Post-Inauguration

As Trump prepares for his inauguration, market analysts point to historical trends suggesting that stock performance typically improves following a new president's swearing-in. Data spanning back to 1929 shows that the average S&P 500 performance for the three months after inauguration is about 3.7%, compared with only 1% leading up to it. Longer-term performance also looks favorable, with average gains of 8.3% six months later and 9.5% after 12 months, according to Jefferies’ research.

Bank of America strategists believe that Trump's return to the White House might protect US stocks from substantial selloffs, as investors anticipate his protectionist policies and corporate tax cuts. Despite the potential for downside risks in the market due to high concentration in large-cap tech stocks and concerns over valuations, US equities remain attractive, according to UBS Global Wealth Management's Mark Haefele. He forecasts a 9% earnings growth for the year, projecting the S&P 500 to reach 6,600 by year-end. He highlights particular sectors such as information technology, financials, utilities, communication services, and consumer discretionary as the most promising.

Corporate Developments

Significant corporate moves this week included Microsoft Corp.’s $13 billion investment in OpenAI, which raised concerns about potential dominance in artificial intelligence and cloud computing sectors. The Supreme Court has upheld a law that might soon shut down TikTok, citing national security risks related to Chinese ownership. Additionally, General Motors is under investigation by US auto safety regulators due to potential engine failure risks in over 870,000 of its vehicles.

Other noteworthy developments include J.B. Hunt Transport Services Inc. reporting lower than expected fourth-quarter earnings and cautioning about cost pressures. Airlines like JetBlue Airways Corp. and Southwest Airlines Co. were downgraded by Bank of America, citing lesser exposure to high-value routes.

Market Summary

Overall, the US stock market appears to be in a recovery phase, with positive indicators heading into the upcoming earnings season. The combination of easing inflation, strong corporate earnings, and optimistic investor sentiment suggests a cautiously optimistic outlook for the near future.

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