Record Breaking Momentum In U.S. Stocks 

U.S. stocks continued their record-setting trend last Friday, with the S&P 500 and Dow Jones reaching new closing highs. The driving force behind this surge was a robust jobs report that boosted confidence in corporate profits.  

In January, U.S. companies added an impressive 353,000 jobs, marking the highest monthly increase in a year. This surge in employment contributed to a positive outlook for corporate profits. Additionally, average hourly earnings rose by 0.6% on the month, or 4.5% from a year earlier. 

Tech Sector Rally And Earnings Highlights 

A notable rally in the tech sector was sparked by Meta’s strong earnings report, coupled with the announcement of its first quarterly dividend. This development led to a remarkable 20% surge in Meta’s shares. Amazon also played a role in the tech rally, surging by 8% after reporting strong earnings. 

Despite a stronger-than-expected non-farm payrolls report, which pushed the benchmark 10-year Treasury yield up by 17 basis points to 4.02%, investor attention shifted towards the tech surge. This likely diminished any lingering chance of the Federal Reserve cutting interest rates in March.  

Market Momentum 

For the week, the S&P and Dow each gained 1.4%, while the Nasdaq Composite rose by 1.1%, marking the fourth consecutive week of increases. 

Here are the closing levels on Friday, February 2^nd, 2024: 

Market Sentiment And Jobs Report Impact 

The remarkable jobs report, featuring a higher revision of previous months, effectively takes a March rate cut off the table, and even May appears uncertain at this point. However, the markets, as before, shrugged off this development and concentrated on the Meta and Amazon news. Fear of Missing Out (FOMO) continues to be the driving force behind market dynamics. 

The strong jobs market signals a robust economy, which traditionally bodes well for stocks. Despite analysts pointing to potential challenges like higher rates or inflation, the market appears indifferent, solely fixated on avoiding missing out on the ongoing rally. 

There may be potential for pain with this thinking but anyone who has refused to join the rally is paying an awful price for being short or getting left behind. 

Looking Ahead: Federal Reserve, CPI Revisions, And Earnings Season 

In the upcoming week, Federal Reserve policymakers are set to make 10 separate appearances, featuring insights from eight different officials. Investors and the Fed alike will be closely monitoring the annual revisions to U.S. CPI on Friday.  

Additionally, increased auction sizes for 3-, 10-, and 30-year Treasury debt sales will test investor demand. Earnings season is in full swing, with 104 companies from the S&P 500 index expected to report. 

Source: CBOE, Bloomberg 

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years.