Earnings Season Delivers—But Can It Last?
The Q4 2024 earnings season is proving to be one of the strongest in years, with the S&P 500 on track for a 16.4% year-over-year earnings increase—the highest since late 2021. The financial sector is leading the charge, posting a staggering 51.2% growth, largely thanks to powerhouse performances from JPMorgan Chase and Goldman Sachs. The SPDR Financial ETF (XLF) could be on its way to $52.63 and then $53.97 with a fresh bounce off of its 20-day exponential moving average.
Meanwhile, communication services and consumer discretionary stocks are also thriving, boasting 30.2% and 24.6% growth, respectively. Mega-cap tech names like Meta and Amazon are showing their continued strength.
META, for example, is up 23.73% in the last 22 trading bars! The market is rewarding the company for laying off employees and replacing them with AI-coding bots over the next few months to years.
But the real question is: can this momentum sustain itself amid a shifting economic backdrop?
PPI Data Sends Mixed Signals
On February 13, the Producer Price Index (PPI) came in hotter than expected, rising 0.4% month-over-month versus the anticipated 0.3%. Year-over-year, PPI stands at 3.5%, up from 3.3% in December. Rising costs in services—particularly travel, diesel fuel, and food—are keeping inflationary pressures alive.
Despite this, markets shook off the news, with the S&P 500 and Nasdaq rallying on expectations that the Federal Reserve will still deliver a rate cut before the end of the year.
When might that happen?
According to the CME Fed Watch Tool, investors are predicting a higher probability of a rate cut coming in September of this year.
Let’s first look at July. The probability of going from a 425-450 target rate down to a 400-425 target rate is just over 40% by the end of July.
The percentages change quite a bit by September. That’s the first time the probability of the Fed cutting rates down to 400-425 is greater than staying at the existing target of 425-450.
That’s several months away. What about until then? Maybe St. Valentine will keep the market love moving higher…
A Valentine’s Market to Love?
Historically, the S&P 500 has shown mixed performance on Valentine’s Day, with some years experiencing notable gains and others seeing slight declines. The sentiment around February 14 often ties back to the earnings season momentum and broader market conditions. Valentine’s Day has had a slight bullish edge over the years, as traders look to mid-February as a potential pivot point, given the mix of earnings reports and inflation data hitting the markets.
Presidents’ Day Trading Trends
As for Washington’s Birthday (Presidents’ Day), historical data suggests that the last trading session before the holiday tends to see increased volatility as traders position themselves ahead of the long weekend.
Here’s the trade history of how the market performed before the long holiday through the next 5 days. Over the years the average gain/loss is -0.29%. This pattern suggests that we should pay attention to potential profit-taking and position adjustments leading into the holiday. Maybe not today specifically, since Valentine’s Day shows a bullish edge, but we could be in for a market breather when we get back from the long weekend.
Enough Already – Where Is the S&P 500 Headed?
While the index remains in a rising trend channel, some analysts see the formation of a head-and-shoulders pattern—a classic sign of a potential market reversal. Key levels to watch include support at 5,875, 5,670, and 5,445. A break below these could signal a shift toward a corrective phase. On the flip side, a push above resistance at 6,090 (that we achieved yesterday) and 6,290 would indicate that the bulls are still in control.
We had a nice move above a key resistance level, but we’ve been here before so how the market reacts to being here once again will be key in determining if this market is finally ready to break out of this trading range.
Extreme optimism and slowing momentum have many questioning whether a pullback is overdue. Historically, when sentiment reaches euphoric levels, corrections aren’t far behind. While the long-term trend remains intact, we should stay nimble and prepared for increased volatility in the weeks ahead. Again, this is a headlines-driven market right now.
Bottom Line
The market is flashing conflicting signals, with strong earnings pushing stocks higher but inflation data is signaling higher prices for goods and services aren’t likely to be heading lower soon.
The S&P 500 sits at a pivotal juncture, and how it reacts to upcoming economic reports and price levels could determine whether we see a continued rally or the start of a deeper correction.
We’ve invited some great speakers to our upcoming Investor’s Blueprint Live event to showcase how they plan to trade through the noise the rest of the year. If you don’t have your ticket yet, email [email protected] and let them know I sent you!
Have a good weekend!
