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Market Momentum Rides Earnings Wave: Can the Tech Titans Keep the Tide High?

The market is data dependent on earnings. So far so good.

U.S. stocks tread water while investors brace for tech earnings and the Fed’s rate decision. After a strong run, further gains hinge on corporate performance. This week brings earnings reports from 19% of S&P 500 companies Their results will be crucial for the market’s trajectory. Earning Season is in full swing which 69% of the companies had positive surprises.  The market is continuing to be led by the Significant 6. 

The past week saw gains across the board for the major indexes, fueled by positive economic indicators. The economy’s growth in the last quarter surpassed expectations, and the year-on-year core inflation was below what analysts had predicted, indicating a potential slowdown in the rise of prices. Despite these gains, the market’s upward momentum was less pronounced than the previous week’s surge, which was dampened by disappointing earnings from major players like Intel and Tesla.

The upcoming week is set to be the earnings season’s peak, including tech giants Microsoft, Apple, Meta, Amazon, and Alphabet, slated to announce their financial results. These companies have been pivotal in driving the market’s performance this year. Additionally, earnings reports from key Dow components such as Boeing and Merck will be closely watched by investors.

The Federal Reserve’s Open Market Committee is scheduled to start its two-day meeting on Tuesday, with market participants widely expecting the central bank to maintain steady interest rates. Futures trading suggests a nearly 97% chance that the Fed will hold rates constant.

The market is continuing to be led by the Mag 7 (but now the Significant 6).  This is significant as the Mag 7 is showing some signs of overbought optimism.  The market hasn’t broadened out as much as expected, but it should over time.  Any investor knows that you must be disciplined and patient in the process.  The market should rebalance at some point.   Investors should continue to be focused on the market eventually broadening out.  The economy is very strong, and all indicators point to a very good 2024.  Inflation is down, interest rates are down, Jobs are strong and consumer confidence is high, these are all great metrics for a great 2024.   Consumer debt is high, but we would expect a bit of a slowdown, but we are looking more at a soft-landing and not a recession.  

This is the best time to be positioning in great quality growth stocks. An investor needs to be disciplined and patient to reap the rewards.   The market is not looking for 2023 returns but it should be moderately positive.

Key Points:

  • Further gains depend on positive corporate performance this earnings season.
  • The market continues to be led by a small group of “Significant 6” companies, raising concerns about lack of broader participation.
  • This week marks the peak of earnings season, with tech giants like Microsoft and Apple releasing results.
  • The Federal Reserve meeting on Tuesday is expected to maintain steady interest rates.

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