Overview
Major U.S. indexes rallied to fresh record peaks last week, buoyed by blockbuster earnings from mega cap companies and an unexpectedly strong January jobs report.
The S&P 500 and Dow Jones Industrial Average both notched all-time highs. The Nasdaq Composite led the charge, surging over 1% for the week.
Key Takeaways
- Blockbuster earnings from Meta and Amazon propel stocks
- January jobs report adds 353K positions, well above forecasts
- Fed rate cut chances dim despite stable inflation and growth
- Big tech and financial earnings now steer the near-term trajectory
- Growth managers should exploit dips in tech and digital payments
- Income investors can tap energy and healthcare earnings strength
- Opportunistic investors should capitalize on market disconnects
Mega Cap Earnings Dazzle
Meta Platforms (META) added over $200 billion in market value after its Q4 earnings crushed
estimates. The Facebook owner reported $32.2 billion in revenue, which was led by stabilizing ad revenue. Its Q1 guidance also exceeded expectations.
Amazon (AMZN) obliterated projections, reporting $10.6 billion in net income for Q4, more than double analysts’ consensus. Amazon Web Services grew by 20% as demand for cloud computing held strong.
With these tech titans affirming resilience, the Nasdaq scored its biggest weekly gain since November. Their ability to grow profits amidst headwinds renews growth narratives.
Jobs Data Defies Expectations
January saw 353,000 jobs added, the most in six months. Forecasts centered around 185,000, given perceived economic weakness. The surprise jobs strength sent Treasury yields higher, dimming hopes for imminent Fed rate cuts.
With inflation cooling but the economy and labor market on solid ground, the Fed looks unlikely to reverse course in March. Markets reduced the odds of rate cuts this year, pricing in a plateau instead.
Stocks Shrug Off Rate-Cut Delay
Despite dashed hopes for an abrupt Fed pivot after strong jobs numbers, stocks took the data as confirmation of sustained economic durability.
The S&P 500 and Dow both achieved record closes, suggesting investors are embracing upside surprises and shaking off concerns around delayed rate cuts.
Risk appetite persists, given corporate resilience and lack of recessionary signals so far. Still, any renewed inflationary pressures or geopolitical tensions could quickly rattle sentiment.
Sector and Asset Class Roundup
Energy stocks like Chevron (CVX) rallied on stable oil prices and strong earnings. But alternative energy faces pressure after tax credit packages stalled.
Technology saw diverging results as giants like Meta and Apple rallied, but Intel slipped on project delays. AI, cloud computing, and cybersecurity continue driving tech gains in the long term.
Healthcare rebounded on robust earnings even as pricing legislation remains on the table. Firms signaled the ability to absorb regulatory changes through efficiency gains.
Industrials face macro uncertainty, but aerospace’s multi-year recovery persists. Restocking and e-commerce cushion any manufacturing and transport weakness.
Consumer discretionary results disappointed with Amazon as the exception. Staples proves defensive as households prioritize essentials amid inflation/rate squeeze.
Positioning for Portfolio Managers
Conservative Managers
The January jobs surprise and reduced odds of imminent Fed cuts suggest conservative managers should stay cautious and underweight equities. Consider holding elevated cash positions to deploy opportunistically should markets pull back.
Focus on high-quality fixed income with short durations resilient to rising rates. Corporate and municipal bonds can incrementally add yield over Treasuries without excessive risk. Dividend-paying mega-caps offer stability during volatility.
Growth Managers
Growth managers should utilize the dip in secular tech winners to rebuild positions at attractive valuations. Cloud, AI, cybersecurity, and digital payments present long-term upside as key enabling technologies.
Meta’s results position it for mean reversion after severe multiple compression; capitalize on disconnects between price and growth prospects. Continue accumulating innovative healthcare names capitalizing on aging demographic trends.
Opportunistic Managers
With economic strength affirmed but rate-cut prospects dimmed, opportunistic managers can deploy capital selectively in fundamentally sound companies that get oversold on near-term market fluctuations.
Add to names poised to benefit from inventory restocking, global infrastructure investment, and defense/aerospace spending. Be ready to realize gains on stretched holdings, rotating into discounted opportunities. Protect against downside risks while leveraging short-term dislocations.
The Week Ahead
Markets embraced strong jobs data and big tech earnings, sending stocks back to record heights. The Fed’s policy path and ongoing corporate results will remain pivotal market movers. Risk appetite persists for now, but sudden shocks could swiftly change the narrative.
Sources:
Duncan Williams
