S&P 500 and Nasdaq: Tech Stocks Lift US Indices Despite Hot PCE Inflation Data

There's been very volatile price action recently in the stock market, particularly in the S&P 500 and Nasdaq sectors. But as of the time of writing this blog, these indices are in rally mode, and that bull run has been spearheaded by technology companies — one of the sectors that have sent a signal to the market that they've got some confidence to buy risk assets on the stock market during the new trading week. Economic calendar events are a driver that helps investors gauge the current mood in the markets, and that event last week was the release of key inflation data. When that CPI data was released to the markets, it came in softer than many investors had hoped for. So the markets took that as a sign that maybe inflation will not force central banks to go forward with their plans to hike rates potentially, which had appeared to have been baked in. But I think the stock market took that number on a more medium-term trade basis, and what the number did was that it took the temperature down on investors who were holding carry trades that saw this number coming in too hot, which was good for global growth. It had also cooled down the markets in terms of trade negotiation talks between the U.S. and China, which has market participants pricing in that these talks will continue to go well (which is risk-on for the stock market).

What to Expect in the Upcoming Earnings Season

Earnings season is upon us – it’s time to take a good look at some broad economic indicators and prepare for potential market-moving catalysts.

Key earnings. Major companies have unique insights into the economy, and as they report their numbers, they may move the market. Companies may also choose to surprise the market by announcing various booking tactics (i.e., buy/sell orders) and revenue recognition choices.
Earnings forecast revisions. In addition to management’s guidance and the outlook for the rest of the year, most companies will provide a new earnings outlook that can be particularly useful to help gauge the future wellness of the economy.
Tariffs. One eye on the calendar for dates is never a bad idea as any announcements made to the market about new tariff scales could potentially move the market.
Geopolitical. Keep an eye out for global, geopolitical news as it will continue to either heighten or reduce investor fears, market confidence, and the animal spirits' appetite for risk.

S&P 500 and Nasdaq Reach New Heights

The S&P 500 and Nasdaq are at record highs, as the S&P 500 has now claimed 4,600 points and the Nasdaq 15,000 points—numbers that have turned the heads of the financial community (this startling performance is due to blue-chip businesses making a ton of money).

MSAI (the "S" stands for spending) has completely revived the U.S. business cycle, which had been held up for the last year or so by miserly fiscal conservatives. Several other reasons for the surge in the U.S. indices stand out:

Technology continues to proliferate in our society (Artificial intelligence [AI] has come a long way. Wait until you see AI on "renewable natural gas.")
The Federal Reserve's monetary policy remains extremely accommodating, which, along with surging technology, continues to push financial speculators into equity risk. What number will this trader be looking for over the next few years? I'll be looking at them all, i.e., the bond markets, the economic indicators, and, of course, a "few" technology companies.

The Role of Tech Stocks in Market Performance

Today's rising market gains, particularly in the current economic climate, have been thanks in large part to some of the major tech companies: Meta, Alphabet, Nvidia, and Microsoft. These are not only technological leaders, but they also have robust earnings reports, significant new technological developments, and — perhaps most importantly (and also what draws the greatest number of parallels) — they have the financial resources and economic defense necessary to perpetuate the development of, for example, AI systems during times of economic uncertainty, thus making them safe economic bets (and excellent places to invest), especially during times of economic uncertainty.

In today's "manic" economy, where does one place their money? Well, meta, alphabet, NVIDIA, and Microsoft are certainly not bad options. While this list is short, it is by no means insignificant: AI, cloud compute, and digital transformation are a part of everyday life (and will become increasingly so), while simultaneously pushing the existing market to both higher prices and higher levels of financial volatility.

Understanding the Impact of Inflation Data

The just-reported Personal Consumption Expenditures (PCE) inflation reading tells the story of still-hot inflation that is not cooling as expected, and the situation is prompting Federal Reserve officials to rethink their game plan.

The policy implication of hotter-than-expected inflation is simple: If inflation won’t go away, there is no way the Fed could continue cutting its trendsetting short-term Federal Funds interest rate. Recent anecdotal accounts suggest that U.S. consumers are not confident in their ability to purchase the things they want or need to buy. If the consumer price line on the box of frozen "thin mints" girl scout cookies that you find at your local Wal-Mart store won’t go down, forget about the possibility (i.e., the probability goes to zero) of the Fed dropping its trendsetting Federal Funds interest rate down a notch.

Trade Optimism and Its Effects on Market Sentiment

Many sectors (notably technology and manufacturing) stand to recover in a big way with favorable US-China—driven trade flows. Revenue/rebound cases can be made for all types of tech and machinery, etc., as investors continue to look, like, bake in recovery outcomes during 2020. Consider making, as an output, any bullish move you, as an investor, want to take in the market against the backbone of this piece: reduced global trade!

Every day the major world indices don’t make a bullish move adds to the bear "volatility to come" pile of mental notes permeating the market trade. US business trade prohibitions are a major obstacle to efficient global markets. Further, any list of macro themes standing in the way of macroeconomic earnings/stability has to have, to any economic analyst or investor, US trade at the very top.

This article will bridge the gap between tech stocks, the movements in the overall market, inflation data, and trade optimism. As we navigate down this rabbit hole, it will become clearer as to how inflation data and trade discussions impact stock prices, particularly with tech.

Upside trade developments will give cause for investors to project additional growth in the economy. Technology is the growth sector of the economy, so it could spark a big rally in the shares of technology companies. This is good information to be aware of. The markets can trade according to the understanding of this phenomenon. This [[thinking ahead]] is the real definition of being a great investor. The thought that goes along with strategic thinking like this can be done as reported updates on the stock market are followed. While you are following the stock market, statistically, you need to put yourself in the position of someone who comprehends the benefits of these findings.