Stocks Up On Friday After A Strong Week Of Earnings And A Favorable Inflation Report  Image: Bigstock Stocks closed higher on Friday, and for the week, after the PCE index confirmed that inflation is on the decline. Friday morning's Personal Consumption Expenditures (PCE) index showed headline inflation was up 0.1% m/m as expected. On a y/y basis it came in at 4.2%, which was in line with the consensus, and below last month's 5.0% pace. The core rate (ex-food & energy) was up 0.3% m/m as expected. On a y/y basis it came in at 4.6%, which was a tad above estimates for 4.5%, but below last month's 4.7%, not to mention last year's peak inflation rate of 5.3%. Friday's report underscored the Consumer Price Index (CPI), and the Producer Price Index (PPI) reports that came out earlier in the month. They too showed inflation on the decline with core CPI at 5.5% vs. last year's peak of 6.5%, and core PPI at 3.4% vs. last year's peak of 8.2%. The Fed is still widely expected to raise rates one more time by 25 basis points on May 3, but then call it quits. That will put the terminal rate at the 5.1% level that they have been forecasting. While some are speculating that the Fed might even cut interest rates later this year, they have repeatedly said they do not see that happening in 2023. But they are forecasting rates to fall to 4.1% by the end of 2024, and 3.1% in 2025. But simply stopping the rate hikes is enough for now, and should be interpreted bullishly by the market. In other news, investors have been cheering a better than expected earnings season. All week long last week we got a parade of positive EPS surprises by some high profile names like McDonald's, Microsoft, Meta (Facebook), Alphabet (Google), and Comcast to name a handful. Earnings season kicks into high gear this week with 1,628 companies set to report, including marquee names like NXP Semiconductors today, Advanced Micro Devices on Tuesday, Qualcomm on Wednesday, Apple on Thursday, and Berkshire Hathaway on Friday. But Wednesday afternoon's FOMC announcement, and Fed Chair, Jerome Powell's customary press conference afterwards, are the week's main event. As we begin a new week and a new month, it's important to take a look at where we've been. Since the market's key upside reversal on October 13 last year, the Dow is up 18.7%, the S&P is up 16.6%, and the Nasdaq is up 19.7%. Heady gains.
YTD, the Dow is up 2.87%, the S&P is up 8.59%, and the Nasdaq is up 16.8%. Solid performance so far. And it looks like there's a lot more upside to go. Especially when you consider that stocks are still down from their all-time highs with the Dow still down by -7.34%, the S&P down by -13.1%, and the Nasdaq still down by -23.9%. It's also worth noting that the seasonals are on the market's side as well. Most notably, the 4-year Presidential Cycle which shows that year 3 (that's 2023), is the best year of all 4 years. In fact, since 1950, stocks have always gone up in the year after midterms, with an average 12-month forward return of 18.6%. Throw in a resilient economy, a strong labor market, declining inflation, and the Fed near the end of their rate hike cycle, and 2023 is looking like it could turn out to be a banner year. So make sure you're taking full advantage of it. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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