This Week’s Key Insights

By
Joe Killer
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This Week’s Key Insights

Last week, the S&P 500 (^GSPC) surged to an all-time high, fueled by recently released inflation data that suggested favorable developments regarding the Federal Reserve’s rate cut strategies.

Throughout the week, the Nasdaq Composite (^IXIC) gained over 2.5%, while the S&P 500 increased by nearly 1.5%. The Dow Jones Industrial Average (^DJI) saw a rise of approximately 0.5%.

The corporate earnings season continues, with notable quarterly announcements expected from Alibaba (BABA) and Walmart (WMT). In total, 46 companies in the S&P 500 are set to report their results during this holiday-shortened trading week.

Looking ahead, the week will feature a reduced amount of economic reports. Investors will focus on the minutes from the Federal Reserve’s January meeting, along with updates on manufacturing and services activity, as well as consumer sentiment.

Please note that markets will be closed on Monday in observance of Presidents’ Day.

Recent inflation readings for January revealed price increases exceeding Wall Street’s expectations. However, economists noted encouraging details that bode well for the markets and the Federal Reserve.

When examining categories from both the Consumer Price Index (CPI) and Producer Price Index (PPI) that influence the Fed’s preferred measure, the Personal Consumption Expenditures (PCE) index, it seems that inflationary pressures may have eased in January.

Economists currently project that “core” PCE, which excludes the more volatile food and energy sectors, will likely register at 2.6% for January, a decrease from 2.8% in December. This has led to market expectations for one or two interest rate cuts from the Fed in 2025, consistent with the previous week’s outlook, according to Bloomberg data. Notably, many economists are inclined to believe that the Fed is more likely to cut rates than increase them.

Morgan Stanley’s chief US economist, Michael Gapen, stated in a note to clients on Friday, “We believe the likelihood of Fed hikes remains minimal. The development of inflation expectations and the effects of tariffs on service-sector inflation are critical areas to watch. For the moment, our perspective suggests that Fed policy outcomes are more inclined towards rate cuts than hikes.”

Investors are keenly awaiting the release of the Fed’s minutes from its January meeting, scheduled for Wednesday at 2 p.m. ET, hoping to glean insights into the central bank’s future interest rate plans.

The S&P 500 has returned to near-record levels, and this surge is not solely driven by a few tech giants. While Meta (META) has experienced a 20-day consecutive increase and contributed over 25% to the S&P 500’s rise, it, alongside Amazon (AMZN), are the only members of the Magnificent Seven tech stocks that have outperformed the S&P 500 in 2025. Additionally, the count of companies exceeding the index’s 4% gain has significantly increased as 2025 unfolds.