Equity Markets – Strong Start to Q4 Earnings Season

Equity markets rose during the week as investors continued their “risk-on” mentality. The S&P 500 Index rose 2.3%, while the NASDAQ Composite gained 2.6%. The Magnificent 7 was up 1.7%. Small caps rose 2.1% for the week. Bond indices gained 0.4% during the week.

Year-to-date, equity markets have had a strong start, with small cap stocks outpacing large caps. The Industrial and Energy sectors are the top performing sectors thus far in the year, who were among the worst performing sectors in 2024.

Manufacturing Activity Rebounds, While Retail Sales Increase Modestly

Housing starts for December came in higher than forecasted, reaching a ten-month high, as activity in construction gained traction. Mortgage rates, however, are still at relatively high levels which may put a damper on further demand for homes. Building permits for December also came in higher than forecasted, reaching a ten-month high.

Industrial and manufacturing production for the month of December came in higher than expected, as output by utility companies and mining led the gains. Manufacturing activity has been relatively weak for a number of years; however, as companies transition to “on shore” their industrial production, the United States looks to see further increases in domestic manufacturing activity going forward.

Retail sales for December came in slightly lower than expected, however, still posting an increase. Specifically, sales in motor vehicles were strong, as has been the case for several months in 2024. November’s retail sales were also revised higher.

A number of Federal Reserve governors this week commented that recent inflation metrics look to be in the right direction and may warrant rate cuts this year. The market is currently pricing in two rate cuts in 2025.

Fourth Quarter Earnings Starting Strong

Fourth quarter earnings season has begun, and results are off to a strong start. Although only a small number of companies have reported (~ 10%), over 80% of those companies beat analysts’ earnings forecasts. Year-over-year (YOY) earnings growth in the S&P 500 for the fourth quarter is expected to be 10.7%, with the Financials and Communications sectors expected to provide leadership. YOY earnings growth for calendar year 2025 is expected to be 13.8%, which will be higher than calendar year 2024’s forecasted YOY earnings growth of 10.4%.


Sources: BTC Capital Management, FactSet Research Systems Inc., Federal Open Market Committee (Federal Reserve) LSEG I/B/E/S, FTSE Russell (an LSEG Group company), S&P Global, U.S. Bureau of Labor Statistics, U.S. Census Bureau
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