Welcome back! The stock market starts back with a shortened trading week. Following a week of downturns fueled by rising inflation and dwindling expectations for imminent Federal Reserve rate reductions.
The Fed’s concern over inflation is far from over. Inflation indicators, such as the January CPI and PPI reports, suggest a continued inflation fueled by the end of the pandemic, shrinking savings, and postponed major purchases. It seems the Fed is inclined to keep interest rates “higher for longer” until inflation is decisively curbed.
The persistence of inflation, driven by sustained demand, suggests it’s here to stay for a while. Despite a cooling economy, the employment market is robust, consumer confidence remains strong, and people are adapting to the increased interest rates. The economic slowdown is in line with the significant interest rate hikes of 2023, leading to speculation about whether the economy will land a soft landing or slip into a recession to manage inflation.
Financial stocks are in play as Capital One Financial is purchasing Discover Financial Services in an all-stock deal worth $35.3 billion. Additionally, Walmart and Home Depot beat on earnings. Investors are awaiting earnings of Palo Alto Networks expected after the bell. Cybersecurity, as AI, has been a strong sector in the last year.
The current market is in a melt-up phase. The optimism is probably over extended. As disciplined and patient investors, we will follow a strategic approach of investing in the strongest fundamentally sound companies. There are many opportunities, and the market should continue to broaden out. The Mag 7 has more profits than almost every country in the world according to an article on CNBC. Can this be sustainable with governments that are “taxing bodies”? Disciplined investors must be patient and not follow the herd. The market rewards the disciplined and patient.
The economy is strong and there are many companies that should present great investment opportunities in the future.
Key Points:
- Shortened trading week: Following a down week caused by inflation concerns and reduced expectations for immediate Fed rate cuts.
- Fed’s commitment to lower inflation reigns: The Fed’s focus on curbing inflation increases the probability of “higher interest rates for longer,” potentially impacting market performance.
- Mixed signals: Despite the economic slowdown, robust employment and strong consumer confidence indicate continued economic resilience.
- Corporate Acquisition. Capital One’s acquisition of Discover and Walmart’s investment into Visio highlights activity in the space. Corporate giants are looking for acquisitions in a market that hasn’t fairly rewarded all.
- Earnings reports: Earnings continue to be strong. Walmart and Home Depot beat estimates and Palo Alto Networks (cybersecurity) release after the bell.
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