Stocks Cross Historic Level on Strong Earnings, Economic Data

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Stocks continue their advance into record territory as earnings beat estimates and recession fears melt away.

The S&P 500 rose 1.4 percent between Friday, February 2, and Friday, February 9. It was the 14th gain in the last 15 weeks, and the fifth consecutive advance. The index also made history by closing above 5,000 for the first time ever.

Investors bought more large technology companies associated with Artificial Intelligence (AI), especially semiconductors. Other stocks like Walt Disney (DIS) and Ralph Lauren (RL) rallied on strong results. Numbers have improved as earnings season has progressed, according to FactSet. The research firm observed an increasing proportion of companies beating estimates. It also noted that earnings are growing almost twice the pace expected on December 31.

Biggest Gainers in the S&P 500 Last Week
Enphase Energy (ENPH)+20%
Ralph Lauren (RL)+18%
Monolithic Power Systems (MPWR)+18%
On Semiconductor (ON)+14%
Walt Disney (DIS)+12%
Source: TradeStation Data

The economic calendar was light, but supported sentiment. The Institute for Supply Management’s service sector index rose more than forecast as new orders improved. The Semiconductor Industry Association reported unexpected sales growth in December and initial jobless claims were lower than projected. Inflation data was potentially benign, with the government revising December’s consumer price index (CPI) lower. Chinese prices also fell sharply as the Asian giant struggles with deflation (potentially easing global inflationary pressures). Those numbers suggest the economy is maintaining strong growth as inflation moderates. In other words, a “soft landing” is still taking shape.

Inflation will be in focus this week because January’s CPI is due tomorrow morning.

AI Boom Continues

Semiconductor developer Arm (ARM) jumped 62 percent after AI demand fueled better-than-expected earnings, revenue and guidance. The U.K.-based firm isn’t in the S&P 500 and only went public last September, but its results helped lift the entire group.

Arm (ARM), daily chart, with 50-day moving average.

Other chip companies like Monolithic Power (MPWR) and Onsemi (ON) also beat.

Palantir (PLTR), another prominent tech stock that isn’t in the S&P 500, surged 43 percent after results surprised to the upside. Most important, however, was its 70 percent revenue growth in U.S. commercial customers. That indicated the software company is successfully transitioning from government business to corporate clients.

DIS jumped after cutting costs and announcing plans to distribute ESPN through streaming services. It also hiked its dividend. The news gave investors confidence that the media giant finally has a plan to thrive in a post-television world.

Palantir (PLTR), with 50- and 200-day moving averages.

Retailers Rally

Traditional retailers advanced on signs the industry has turned a corner after a decade of losing business to e-commerce. RL, for example, beat revenue estimates by 3 percent. However earnings were 17 percent above consensus estimates. That reflected wider margins as management raises prices and tightens inventories. Shipping costs also continue to ease.

Will peers report similar improvement in their quarterly results later this month? The group could also be in focus with retail sales due on Thursday.

Solar-energy stocks bounced after Enphase Energy (ENPH) predicted business will improve next quarter. Chinese stocks also rebounded. Both groups have underperformed by a wide margin over the past year.

Companies associated with transportation, including airlines and oil refineries, also outperformed. Those are typically viewed as cyclicals that benefit from stronger economic growth.

Safe-havens like gold miners, utilities and consumer staples fell more than 1 percent. Banks also remained under pressure amid commercial real-estate worries.

Charting the Market

Some potentially positive patterns seem to be supporting the market’s advance.

First, the S&P 500 began last week testing below its previous high but rebounded to close above it. That kind of price action — old resistance becoming new support — is may reflect an uptrend.

Second, the moving average convergence divergence (MACD) oscillator has been rising.

Third, prices have remained above their 10-day moving average. That’s potentially consistent with a bullish short-term trend.

S&P 500, daily chart, with key indicators and patterns.

The Week Ahead

This week’s two main events are inflation tomorrow morning and retail sales on Thursday. There are also several Federal Reserve speakers, more earnings and housing data.

Arista Networks (ANET) and Cadence Design Systems (CDNS) report this afternoon.

Biggest Decliners in the S&P 500 Last Week
FMC (FMC)-16%
Air Products & Chemicals (APD)-15%
Expedia (EXPE)-13%
Paramount (PARA)-11%
Moderna (MRNA)-10%
Source: TradeStation Data

The CPI inflation report is at 8:30 a.m. ET on Tuesday. Coca-Cola (KO), Shopify (SHOP) and Airbnb (ABNB) are some of the noteworthy earnings.

Crude-oil inventories are on Wednesday and Cisco Systems (CSCO) issues results after the closing bell.

Thursday features retail sales, initial jobless claims and NAHB homebuilder sentiment. Deere (DE), Applied Materials (AMAT), Coinbase (COIN), Draftkings (DKNG) and Roku (ROKU) are some of the prominent reports.

Friday brings the producer price index, housing starts and building permits.

The market is closed the following Monday, February 19, for Presidents’ Day.

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