The S&P 500 (^GSPC) closed at a record high last week, buoyed by encouraging inflation data that reinforced expectations of Federal Reserve rate cuts. The Nasdaq Composite (^IXIC) surged over 2.5%, while the S&P 500 gained nearly 1.5%, and the Dow Jones Industrial Average (^DJI) added 0.5%.
This week, investors will focus on the Federal Reserve’s January meeting minutes, manufacturing and services sector updates, and consumer sentiment data. Corporate earnings season continues, with reports from Alibaba (BABA) and Walmart (WMT) headlining a holiday-shortened trading week. Markets will be closed on Monday for Presidents’ Day.
Inflation Data and Fed Rate Cut Expectations
Recent inflation readings for January showed prices rising more than expected, but economists found positive signals for the Fed’s rate cut plans. Key categories in the Consumer Price Index (CPI) and Producer Price Index (PPI) feed into the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index. Analysts expect core PCE, which excludes food and energy, to slow to 2.6% in January from 2.8% in December.
Markets are pricing in one or two rate cuts in 2025, with economists leaning toward cuts rather than hikes. “We think the bar for Fed hikes remains high,” said Morgan Stanley’s Michael Gapen. Investors will scrutinize the Fed’s January meeting minutes, released Wednesday, for insights into the central bank’s policy outlook.
Broad Market Participation Boosts S&P 500
The S&P 500’s rally isn’t solely driven by tech giants this time. While Meta (META) and Amazon (AMZN) have outperformed, 48% of S&P 500 stocks are beating the index’s 4% gain this year—a significant improvement from 2023. Richard Bernstein Advisors CEO Richard Bernstein noted that the last two years saw the lowest number of outperforming stocks in 25 years.
However, Freedom Capital Markets’ Jay Woods cautioned that the market’s direction could hinge on upcoming earnings reports, particularly from Nvidia (NVDA) on February 26. “If we get a bad report out of Nvidia, we could see the market turn lower,” Woods said.
AI Trade Continues to Dominate
AI-related stocks remain market leaders, with Palantir (PLTR) and Super Micro Computer (SMCI) topping the S&P 500’s 2025 performance, each up over 50%. Recent moves in AI stocks were volatile after Nvidia disclosed changes to its equity holdings, ditching positions in Serve Robotics (SERV) and SoundHound (SOUN). Meanwhile, Chinese autonomous driving company WeRide (WRD) saw its shares nearly double.
Key Events and Earnings This Week
Monday:
- Markets closed for Presidents’ Day.
Tuesday:
- Economic data: Empire Manufacturing, NAHB Housing Market Index.
- Earnings: Devon Energy (DVN), Oxy (OXY), Toll Brothers (TOL).
Wednesday:
- Economic data: MBA Mortgage Applications, Housing Starts, Building Permits, FOMC Meeting Minutes.
- Earnings: Carvana (CVNA), Cheesecake Factory (CAKE), Etsy (ETSY), Garmin (GRMN), Toast (TOST), Wingstop (WING).
Thursday:
- Economic data: Initial Jobless Claims, Philadelphia Fed Business Outlook, Leading Index.
- Earnings: Alibaba (BABA), Walmart (WMT), Block (SQ), Booking Holdings (BKNG), Rivian (RIVN), Shake Shack (SHAK), Unity (U), Texas Roadhouse (TXRH), Dropbox (DBX).
Friday:
- Economic data: S&P Global US Manufacturing PMI, Services PMI, Composite PMI, University of Michigan Sentiment.
- Earnings: No notable releases.