By Rick Schwerd | January 24, 2025
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Stocks Resume Rally
After a tough January and mixed start to the year, stocks resumed their rally over the last few weeks, and the S&P 500 hit a new all-time high. Better Consumer Price Index (CPI) and Producer Price Index (PPI) data last week eased inflation concerns and helped bring down yields. A good start to fourth-quarter corporate earnings season also helped boost stocks.
The S&P 500 is up 4 percent to start the year and now sits at 6,125. The NASDAQ is also starting the year 4 percent higher and hovers just below the all-time high it reached in December. One positive aspect of the rally has been its breadth across the market. Unlike the last two years, the Magnificent Seven stocks — Apple, Microsoft, Nvidia, Meta, Google, Amazon and Tesla — have seen mostly subdued returns so far this year. None are in the top 50 of the best performing S&P 500 stocks year-to-date. A broadening of the market is healthy and may help lead to another leg up in the current bull market as it enters its third year.
Better Inflation Data
After several months of disappointing inflation data, we finally received good news. Core-CPI, which excludes volatile food and energy prices, came in at 3.2 percent, down a tenth-of-a-percent from the previous month and below expectations. Headline CPI was 2.9 percent, which matched estimates. Core-PPI came in at 3.5 percent, .3 percent better than expected.
Inflation continues to be above the Federal Reserve’s 2 percent target level, but the better-than-expected data helped markets breathe a sigh of relief and take some steam out of surging intermediate and long-term yields. The benchmark 10-Year U.S. Treasury yield, which had increased from 3.6 percent in early September to 4.8 percent early last week, dropped approximately a quarter-percentage point following the better data. Inflation readings and yield levels will likely continue to have an oversized effect on equity markets for the foreseeable future.
Looking Ahead
Next week marks the peak in the fourth-quarter earnings season as more than 100 of the S&P 500 members will be reporting. Many of the biggest companies, including Apple, Meta, Microsoft, Tesla and Google, will release their earnings. Expectations are generally positive, but company guidance on upcoming quarters will be closely scrutinized and will likely move equity markets.
Fourth-quarter Gross Domestic Product (GDP) will also be released next week. Estimates are in the 2.5 to 3.0 percent range, capping off a good year for U.S. growth. First-quarter estimates have been trending higher. Many industry experts believe the economy will cool slightly through the remainder of the year but still remain solid.
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About the Author: With almost three decades of financial industry experience, Rick serves as a Senior Investment Officer at Arrow Bank, formerly named Glens Falls National Bank. He oversees individual and corporate retirement plans, personal trusts, investment management accounts, foundations and not-for-profit relationships. He is also co-portfolio manager of the proprietary North Country Large Cap Equity Fund.