- Looking Back to Last Week: Inflation remains a challenge, but December's data provided some relief with no negative surprises. As a result, long-term interest rates and the dollar declined, while the stock market enjoyed its best week since November.
- Looking Ahead: The newly announced policy agenda from President Trump is poised to shape financial headlines and market movements in the days ahead. The economic calendar this week is relatively light.
- Corporate Earnings: Though early in the earnings season, S&P 500 earnings are on track to deliver their strongest year-over-year growth in three years, with nearly 80% of companies beating expectations and providing strong momentum into 2025.
Looking Back to Last Week
Last week was a whirlwind of events, filled with moments of tragedy and hope. We witnessed the historic Inauguration Day, honored Martin Luther King Jr. Day, endured LA wildfires and a Northeast winter storm, record cold across the country, saw a Middle East ceasefire take shape, and celebrated football highlights. Amid it all, the stock market delivered its best performance since November.
Focusing on the financial markets, strong earnings—particularly in the financial sector—led the charge. S&P 500 earnings growth is now nearing 13% year-over-year, marking the best pace since the fourth quarter of 2021. More on earnings in a moment.
Adding fuel to the market's momentum were declines in long-term interest rates and the U.S. dollar, spurred by inflation data that did not exceed expectations. However, inflation remains persistently high. December's Consumer Price Index (CPI) rose 2.9% year-over-year, while core CPI (excluding food and energy) climbed 3.2%. Notably, the “Supercore” inflation metric—which excludes food, energy, goods, and housing rents—rose 4.2%, higher than the 3.9% reading from 2023.
For the week, global equities gained nearly 3%, erasing losses from earlier in the year. Gains were led by mid- and small-cap stocks, as well as value stocks, all up over 4%. Commodities continued their upward trend, remaining the top-performing asset class so far this year.
Looking Ahead to This Week
Inauguration Days are always historic, and the newly announced policy agenda from President Trump is poised to shape financial headlines and market movements in the days ahead. Early market reactions include:
- Lower energy prices due to the President’s declaration of a “national energy emergency.”
- A volatile U.S. dollar first driven lower by a shift toward “engagement with China” over immediate tariffs but then higher due to tougher talk on tariffs regarding Canada and Mexico.
- Higher cryptocurrency prices following the announcement of crypto-friendly policies.
As investors, whether policy decisions align with our preferences or not, it is wise to heed the timeless advice of the late Charlie Munger: “We have to invest in the world we live in, not the world we want.”
While this week is light on economic data, corporate earnings will take center stage once again.
Best Corporate Earnings in Years
Earnings season is off to a robust start, providing support for the stock market. Though still early, fourth-quarter earnings for the S&P 500 could deliver the strongest year-over-year growth in over three years. The current blended earnings growth rate stands at 12.5%. If this holds—or improves—it will be the best growth rate since Q4 2021’s 31% and the sixth consecutive quarter of year-over-year earnings growth for the index.
Additionally, S&P 500 companies exceeded expectations at an impressive clip. Nearly 80% of companies reporting so far have delivered positive earnings surprises, with results averaging over 9% above estimates. This beats the ten-year average of less than 7%.
The bottom line: Investors look to equities to participate in corporate earnings growth. The strength of these earnings reports bodes well not only for closing out 2024 on a high note but also for maintaining momentum as we enter 2025.
Final Thoughts
The markets in the weeks and months ahead will no doubt experience ups and downs as investors navigate the interplay of tailwinds and headwinds. Surprises will inevitably arise. However, we remain steadfast in our belief that staying invested, diversified, and disciplined is the most reliable way to achieve long-term financial goals.
If you have any questions, feel free to reach out at strategists@brinkercapital.com or at rusty@orion.com. Thank you for your time and trust.