Key Takeaways

• S&P 500 and Nasdaq closed at new record highs after Thursday’s market rally.
• U.S. inflation data showed slower-than-expected price increases, indicating cooling pressures.
• Third-quarter earnings reports outperformed estimates, boosting overall sentiment.
• Investors are closely monitoring potential Federal Reserve rate policy shifts amid easing inflation.
• Upcoming job market and retail spending data will further guide market direction and rate expectations.

Introduction

U.S. stocks climbed to record highs on Thursday as the S&P 500 and Nasdaq closed at unprecedented levels. Easing inflation data and third-quarter earnings that surpassed expectations fueled the rally. Attention now turns to forthcoming economic indicators as traders assess the potential implications for Federal Reserve policy and market trajectories.

Market Performance Overview

The S&P 500 achieved a new record high of 5,064.25, marking its third record-setting session this week. Driven by robust earnings and encouraging inflation updates, the index has added 2.3% since Monday.

The Nasdaq Composite also reached record territory, closing at 16,782.40. The technology sector’s continued strength contributed significantly to this momentum. Trading volume climbed to 4.3 billion shares, well above the average daily volume of 3.8 billion.

The Dow Jones Industrial Average advanced by 1.8% to 37,950.15. However, it remains just below its January peak.

Inflation Data Impact

On Thursday, Consumer Price Index data showed inflation cooling to 3.1% year-over-year, below the predicted 3.3%. Core inflation, which excludes food and energy, dropped to 3.9%, the lowest reading since May 2021.

David Kostin, chief economist at Goldman Sachs, stated that recent inflation numbers “substantially increase the likelihood” of Fed rate cuts by mid-2024. According to CME Group’s FedWatch Tool, the probability of a rate reduction at the Federal Reserve’s March meeting has risen to 65%.

Bond markets responded to the inflation data. Yields on 10-year Treasury notes fell by 12 basis points, reaching 4.25%.

Earnings Season Performance

Technology Sector Leadership

Microsoft led technology gains by reporting quarterly revenue of $62.3 billion, exceeding analyst estimates by $2.1 billion. Azure, its cloud division, posted 30% year-over-year growth, beating projections.

Meta Platforms also bolstered optimism by announcing its first-ever dividend. The company reported a 24% increase in advertising revenue, and shares rose 15% after the announcement.

Financial Sector Results

JPMorgan Chase posted record annual profits of $49.6 billion in 2023. CEO Jamie Dimon highlighted resilient consumer spending and stable credit conditions. The banking sector performed well overall, with 82% of reporting institutions surpassing earnings estimates.

Market Breadth and Participation

Market indicators reflected improving breadth. Advancing stocks outnumbered decliners by a 3-to-1 ratio on the NYSE. Stocks reaching new 52-week highs rose to 425, the highest figure since December 2021.

Small-cap stocks also joined the upward trend. The Russell 2000 index added 2.1%, indicating wider participation beyond large-cap stocks.

Trading Volume Analysis

Institutional trading rose sharply. Block trades accounted for 42% of total trading volume, the highest level of institutional participation since October 2023.

The options market was notably active. The CBOE Volatility Index (VIX) dropped to 13.2, reflecting reduced market anxiety and a greater appetite for risk among traders.

Technical Indicators

The S&P 500’s Relative Strength Index (RSI) climbed to 68, nearing but not entering overbought territory. Moving averages signaled strong momentum as the 50-day average crossed above the 200-day, forming a golden cross.

Volume patterns pointed to ongoing buying interest, with higher volume on market rallies and lighter volume during minor pullbacks.

Conclusion

U.S. equities registered broad gains, supported by softer inflation and solid earnings that attracted renewed institutional interest and broadened market participation. Technical trends show persistent buying and lower volatility, suggesting stable market conditions. What to watch: the Federal Reserve’s upcoming March meeting, when the outlook for a potential rate cut will become more defined.