Stocks End Higher, S&P Makes Another New All-Time High  Image: Shutterstock Stocks closed solidly higher yesterday with all of the major indexes in the green. The small-cap Russell 2000 led the way with 1.67%. The Nasdaq Composite gained 1.12%. And the S&P 500 was up 0.76%, and making another new all-time high in the process. Last week's PCE report which confirmed the rate of inflation continues to ease, gives the Fed yet another data point to justify cutting rates.
While nobody is expecting the Fed to cut rates later this week (Wednesday, January 31), when they make their FOMC announcement, it gives them the flexibility to cut as early as their March meeting if they wanted to, or wait until their May meeting. Complicating matters, however, is the underlying strength of the economy (Q4 GDP just came in at 3.3% vs. the consensus for 2%), and the tighter than expected labor market. But with inflation continuing to fall, they likely can afford to reduce rates from current levels. The big questions will be when exactly will they begin, and how big do they see the cuts being this year? The size of the cuts is probably more important than the timing, if all we're talking about is roughly a month and half difference. But with the Fed forecasting just three 25 basis point cuts (75 basis points total) vs. many in the market expecting 4-5 cuts (100-125 basis points total), that's a big difference and much more important. While we probably won't get the cut and dried clarity we're all wishing for on Wednesday, we will likely hear changes in their policy language, and they might very well revise their forecast for the amount of cuts they foresee, and possibly drop hints as to the timing of it all.
In the meantime, we've got a busy week ahead of us, namely with earnings. After the close yesterday, Super Micro Computer posted a positive EPS surprise of 2.01%, and a positive sales surprise of 14.0%. They were up 4.54% in the regular session before earnings. After they reported, they were up more than 10% in after-hours trade. Today we'll hear from 111 companies, including tech titans Microsoft, Alphabet (aka Google), and Advanced Micro Devices after the close. It'll be a jam-packed week with key earnings reports, the FOMC announcement on Wednesday, and of course, the always important Employment Situation report on Friday. Another key economic report and monetary policy driver. In the meantime, the market likes what it sees and hears. The economy is resilient. Inflation is going down. Rates will be doing the same. And earnings are coming in better than expected, while the outlook for the coming quarters is showing a trend of improvement for both sales and earnings estimates. And stocks are responding accordingly. Two more days left in the month. As they say, "as goes January, so goes the year." If so, it's looking like it's going to be another great year for the market. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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