Market Surge on Dovish Fed and Strong Earnings Reports

On Friday, the U.S. stocks market closed robustly, marking a week filled with gains across major indexes. The positive momentum was driven by several factors, including the Federal Reserve’s dovish stance and a string of impressive corporate earnings.

Federal Reserve’s Influence and Corporate Earnings

The week started on a high note due to the Federal Reserve’s dovish signals, boosting investor optimism.

Adding to this positive sentiment were strong earnings reports from industry giants such as Amazon (AMZN) and Apple (AAPL). Both companies surpassed expectations, with Apple’s announcing a record $110 billion stock buyback program, sparking notable excitement.

Market Performance and IPO Success

This upbeat close contributed to the Dow’s eighth consecutive winning day, making it the best week of 2024 so far.

The market’s enthusiasm was further fueled by the successful initial public offering (IPO) of Zeekr, a Chinese electric vehicle company, which had a strong debut on the New York Stock Exchange.

Broader Market Trends and Economic Indicators

Looking at the broader picture, the S&P 500 (SP500) recorded its third consecutive week of gains, nearly erasing all its April losses and now sits just 0.6% below its record closing high.

The market’s advance was driven by heightened expectations of Federal Reserve interest rate cuts, supported by signs a cooling U.S. labor market and dovish actions from European central banks.

The first-quarter earnings season continued with positive surprises, such as Walt Disney (DIS), which reported unexpected profits in its streaming operations.

Weekly Performance Overview

Over the week, the S&P 500 rose by 1.9%, the Dow increased by 2.2%, and the Nasdaq Composite climbed by 1.1%.

Closing levels on Friday, 10th May 2024: 

Index  Last  Change Change% 
DOW JONES 39,512.84 +125.08 +0.32%
S&P 500 5,222.68 +8.60 +0.16%
NASDAQ 16,340.87 -5.39 -0.03%
US 10Y 4.496%
VIX 12.55 -0.14 -1.1%

Bull Market Momentum and Economic Concerns

Friday’s positive close and the overall performance for the week underline the continuation of a positive trend in the market. Investor confidence has been bolstered by the Fed’s dovish signals and robust corporate earnings, signaling optimism for the future trajectory of major stock indices.

Currently, nothing seems to impede this bull market, which is now just inches away from a new high. It appears that sellers are yielding to buyers’ momentum.

Despite poor consumer spending and higher inflation expectations, buyers remained undeterred. The prevailing belief is that the Fed is ready to cut rates if the jobs situation and the economy start to falter.

Focus on Potential Rate Cuts and Market Risks

As long as the focus remains on a potential cut, whether in July, September or November, investors feel comfortable maintaining long positions.

As I mentioned last week, this positive trend could persist, and we might even see a new high. However, I won’t bet my life savings on it, as a reversal is always possible.

Investors might reconsider their positions if they realize that a Fed rate cut could signal underlying economic weaknesses. Remember, stock prices typically fall when the economy is under pressure—a critical point to consider.

Source: CBOE, Bloomberg

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years. 

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