MANHATTAN (CN) — Two out of the three major U.S. indices again set new records this week, as Wall Street continues to out-perform and the economy continues to hold up.
More than one in ten stocks listed on the S&P 500 set new all-time high valuations this week, while artificial intelligence company Nvidia’s blockbuster earnings report was credited with a minor bull rush.
By the closing bell Friday, the Dow Jones Industrial Average netted 504 points and managed to hit a new high of 39,131. The S&P also set a new record, closing up 83 points for the week to exceed the 5,000-point mark, while the Nasdaq managed to gain 221 points.
“The reality is that the market is passing what one would consider a Goldilocks environment and is now entering another realm of justification, something referred to as ‘Platinumlocks,’” wrote Tom Essaye of the Sevens Report in a Friday morning investor’s note.
Essaye noted the market has “surged past reasonable valuation level” and “this is literally a market that’s starting to invent words for how great stocks are performing and how amazing stocks imply the current environment is for corporate profits.”
Markets were not fazed much by the Federal Reserve’s release of its minutes from last month’s meeting, which showed the central bank remains somewhat hawkish despite members gaining “greater confidence that inflation was moving sustainably toward 2%.”
Analysts, experts, and investors all expected the Fed to push back interest rate cuts due to recent inflation and jobs data that show an U.S. economy that is still too hot. Instead of cuts coming as early as March, many now have May or June penned in for the first cut.
“On balance, there is nothing in the minutes that rules out a May rate cut, which we still think is marginally more likely than not,” Paul Ashworth, chief North America economist at Capital Economics, wrote in an investor’s note. He also wrote the Fed is likely to begin selling off bonds from its balance sheet in the second half of this year.
“It is clear that the message from the minutes, coupled with Fed speakers out in forced, that they are concerned about moving too quickly, before they declare a final victory in quelling victory,” said Quincy Krosby, chief global strategist for LPL Financial.
Krosby added the Fed members “don’t want to repeat the mistake of monetary policy from the 1970s, which opened the door to stagflation and the need for much higher interest rates to expunge seemingly embedded inflation.”
Indeed many Fed officials have in recent weeks swarmed the speaking circuit to both warn investors against interest rate cuts and calm those worried the central bank would not be able to tame inflation.
On Thursday, Fed Governor Christopher Waller said in a speech that there was “no rush” to cut interest rates and that the central bank should “verify that the progress on inflation we saw in the last half of 2023 will continue.”
In a similar speech the same day, Fed Vice Chair Philip Jefferson said he expects interest rate cuts “later this year” but that consumer spending, the labor market, and geopolitical risks like the conflict in the Middle East all pose risks to inflation.
Other than the Fed meeting minutes, the other major news of the week for investors was the February PMI report, which showed the manufacturing sector continues to grow despite recent struggles.
According to the data, the U.S. economy showed an annualized 2% gross domestic product growth, with what is being called a marginal expansion in several sectors during the first quarter of 2024, much better than most other economically advanced nations.
“The U.S. economy is playing in a league of its own,” Gregory Daco, lead economist at EY-Parthenon, said in a statement. “With disinflation on track for a rapid final mile, and Fed officials warming up to the idea of a late-spring or early-summer onset to the monetary policy easing cycle, the U.S. economy will be on track for another solid outperformance in 2024.”
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