Market Insights

The stock market set a new record last week, led by communication companies like Netflix, Comcast and Alphabet.

The S&P 500 rose 1.1 percent between Friday, January 19, and Friday, January 26. It was the third straight positive week, bringing the index above 4900 for the first time.

Communications stocks, established as a unique sector in 2018, rose the most since early November. NFLX ended last quarter with 260.8 million subscribers, almost 5 million more than expected. Revenue and guidance also surprised to the upside. That suggested the streaming giant has successfully transitioned to an advertising-based model. It’s also managed to overcome password sharing.

GOOGL hit new record highs before its quarterly report tomorrow afternoon. Job cuts and optimism about Artificial Intelligence (AI) lifted the stock. CMCSA beat estimates and announced $15 billion in new share buybacks. The media company also grew its Xfinity Mobile service as other products shrank.

Tesla (TSLA), on the other hand, plunged to an eight-month low after warning that growth this year “may be notably lower” than 2023. The electric-vehicle maker also missed earnings and revenue estimates. That made consumer discretionaries the worst performing sector of the week, according to TradeStation data.

Upside in the Economy

Last week also brought more good news about the U.S. economy. Gross domestic product (GDP) expanded by 3.3 percent in the fourth quarter, well above the 2 percent estimate. Consumption helped fuel the growth, matching the pattern of strong retail sales the previous week. A separate report from the Commerce Department showed personal spending up 0.7 percent in December — almost twice the forecast amount.

Incremental bits of data also showed progress on inflation. The core reading in December’s Personal Consumptions Expenditures (PCE) index rose 2.9 percent from a year before. It was the lowest reading in 34 months and slightly below the 3 percent estimate. A similar number in the GDP report was also below consensus.

Third, S&P Global reported that output growth accelerated in January at the fastest pace in seven months. Prices also rose at the slowest rate since May 2020.

These reports seem consistent with a “soft landing” in the economy. In other words, the Federal Reserve has managed to slow inflation without causing a recession. Investors may also describe the situation as “Goldilocks” because the economy isn’t too hot (inflation) or too cold (recession).

Airlines Take Off

In addition to communication stocks, last week’s strongest groups included airlines, energy and banks.

Airlines rallied amid strong earnings from American Airlines (AAL), United Airlines (UAL) and Southwest Airlines (LUV).

Energy rebounded as crude-oil supplies tightened. China also announced economic stimulus, lifting commodities and emerging markets.

Homebuilders fell the most after D.R. Horton (DHI) reported weak orders for new residences and narrower margins. That may suggest that the housing shortage is helping the industry less than hoped.

Charting the Market

Last week’s gains built upon a previous record closing high on January 19. The S&P 500 may be escaping a two-year consolidation pattern similar to previous breakouts in January 2013 and December 2016.

The Nasdaq-100 and Dow Jones Industrial Average also hit new highs. The Russell 2000 small cap index is the only major benchmark still below earlier peaks.

There seem to be few negative signals on the charts but there may be volatility around Wednesday’s Fed meeting. Some chart watchers may look for potential support at the recent peaks around 4800 if a pullback occurs.

Attention is also likely to focus on the 10-year Treasury yield after its big slide in late 2023. Further downside may support risk appetite, while higher borrowing costs could have the opposite effect.

The Week Ahead

This week brings a lot more earnings and big economic events, including the Fed.

Today’s calendar is relatively quiet.

Tomorrow brings consumer confidence and the December JOLTs job openings report. Microsoft (MSFT), GOOGL, Advanced Micro Devices (AMD) and General Motors (GM) announce quarterly results.

The Fed’s announcement will be at 2 p.m. ET on Wednesday. ADP’s private-sector payrolls and crude-oil inventories come earlier in the day. Big earnings include Boeing (BA) and Qualcomm (QCOM).

Thursday features initial jobless claims and the Institute for Supply Management’s manufacturing index. Apple (AAPL), Amazon.com (AMZN), Meta Platforms (META) and Merck (MRK) report earnings.

Friday’s big item is the monthly employment report at 8:30 a.m. ET. Results are also due from companies including Exxon Mobil (XOM), Chevron (CVX) and AbbVie (ABBV).