Stock Market Sets Fresh Records

Investing.com — The stock market set fresh records on Friday, with the Dow Jones and S&P 500 concluding their strongest week in a year after Donald Trump’s election victory.

The Dow Jones Industrial Average climbed 259.65 points, or 0.59%, closing at 43,988.99, briefly surpassing the 44,000 mark for the first time during the session. The S&P 500 advanced 0.38% to end at 5,995.54, having briefly crossed the 6,000 milestone. Meanwhile, the Nasdaq Composite edged up 0.09% to finish at 19,286.78, setting an intraday record high.

All three indexes closed the week at all-time highs.

Equities saw strong gains on a weekly basis, largely driven by a post-election rally. The S&P 500 rose 4.66% over the week, with the Dow adding 4.61%, marking the best weekly performance for both indexes since November 2023. The Nasdaq outpaced those gains with a 5.74% weekly rise, while the Russell 2000, focused on small-cap stocks, surged 8.57%.

The limited data released last week was generally positive, with initial jobless claims staying low and business surveys in the service sector still indicating solid growth. While business sentiment might become more erratic due to policy uncertainties, October’s PMI and ISM surveys showed strength.

This week offers a more comprehensive data lineup, featuring multiple inflation reports, along with retail sales and industrial production (IP).

According to JPMorgan, core CPI is expected to rise by a modest 0.4% month-over-month, driven by firm shelter costs and a surge in used vehicle prices. Year-over-year core CPI inflation is anticipated to edge up to 3.4%.

Retail sales are projected to grow by 0.4% month-over-month for both the headline figure and the control group, "which should be consistent with solid further gains in consumer spending early in 4Q,” JPMorgan strategists said.

"But IP likely will be weak for another month given hurricane drags and a full month of the Boeing (NYSE:BA) strike; it should start to recover in November,” they added.

Walt Disney, Home Depot to Report Earnings

Alongside economic data, investors are eagerly anticipating earnings reports from several major companies this week.

Home Depot Inc (NYSE:HD), Spotify (NYSE:SPOT), and Occidental Petroleum (NYSE:OXY) are scheduled to release their latest financial results on Tuesday, with Cisco Systems (NASDAQ:CSCO) following on Wednesday.

Later in the week, Walt Disney Company (NYSE:DIS), Applied Materials (NASDAQ:AMAT), and Alibaba (NYSE:BABA) Group are also set to report their quarterly earnings.

According to RBC Capital Markets, within the S&P 500, 72% of companies have exceeded consensus earnings per share (EPS) estimates in the third quarter, though this figure remains slightly below the levels seen in Q2 2024. Revenue beats, however, are holding steady at 61%.

For the Russell 1000, companies surpassing EPS forecasts continue to lag the broader market in terms of immediate stock price response, a trend consistent across sectors. In contrast, Russell 2000 companies are displaying more typical patterns, with those beating expectations and outperforming the market.

“Earnings sentiment overall remains negative, with the four-week average of the rate of upward EPS estimate revisions in the S&P 500 tracking at 46%,” RBC strategists said. “Trends remain similar in the Russell 2000.”

What Analysts Are Saying About US Stocks

JPMorgan: “With Trump’s win, we assumed an initial positive market response. The question down the line will be over the sustainability of the move, and that in turn will depend on bond yields’ behaviour. After all, in 2016 the bond yields spike started from sub 2% on 10 year, vs current 4%+, and fiscal deficit was less than half of the current one. Yields approaching 5% could prove trickier for risk assets to digest. Also, the key will be what priorities the incoming administration focuses on. It is plausible that S&P 500 stays supported into year end, and thereafter takes its cue from the above two drivers.”

RBC Capital Markets: “Positioning/sentiment in US equities looks a bit stretched. US equity positioning in the futures market – including S&P 500 contracts – was at all-time highs on election day per CFTC’s Friday update.”

“US equities also look a bit stretched from a valuation perspective. We’re keeping a close eye on the S&P 500 equal-weight forward P/E, which has moved up to 19x – well above average, but not quite back to past peaks. The same is true for the S&P 500 median P/E excluding the top 10 market cap names, which is at 18.7x.”

Evercore ISI: “After months of politically driven caution, “animal spirits” are set to drive S&P 500 to 6,600 by 6/30/25.”

“We view the Road to 6,600 in the S&P 500 by 6/30/2025 as paved by the sectors and themes which work from the Fed Rate Cut Playbook: NDX-like exposure, Tech and Comm. Svcs. along with Small Caps, barbelled by more defensive Cons. Stap. and Health Care.”

Morgan Stanley (NYSE:MS): “The election outcome reinforces our preference for quality cyclicals. Financials remains our top sector pick within this cohort. Rates will be important to watch, though the move thus far has been contained, allowing valuations to expand.”

Goldman Sachs: “We expect earnings will be the primary driver of forward equity returns. S&P 500 3Q profits grew 8% year/year, better than the expected 3% growth. We forecast S&P 500 EPS will grow by 11% to $268 in 2025 and by 7% to $288 in 2026 but see both upside and downside risks to our estimates from potential changes to tax and tariff policies.