Stocks End Mixed, S&P Hits Another New All-Time High  Image: Bigstock Stocks closed mixed yesterday with the Dow ending moderately lower, while the S&P and Nasdaq finished moderately higher (and near their best levels of the day). Yesterday's before-market earnings for Johnson & Johnson (positive EPS surprise of 0.88%), Proctor & Gamble (positive EPS surprise of +8.24%), and Verizon (positive EPS surprise of 0.93%), set a positive tone for the rest of the day. After the close, the positive tone appeared to continue. Netflix reported after the bell and posted $2.11 in quarterly earnings for a negative EPS surprise of -4.09%. But that $2.11 compares to the same quarter last year of just 12 cents, for a significant percentage earnings increase. And they posted a positive sales surprise of 1.33%. That translates to a 12.5% sales increase vs. the same quarter last year. They were up 1.33% in the regular session before earnings. Afterwards they were up more than 8% in after-hours trade. Today we'll get another 112 companies reporting earnings with Abbott Labs, AT&T, and General Dynamics reporting before the open. And then Tesla, IBM, and ServiceNow reporting after the close. In other news, yesterday's Richmond Fed Manufacturing Index dipped to -15 vs. last month's -11. Today we'll get MBA Mortgage Applications, the PMI Composite Flash report, and the Survey of Business Uncertainty. But, as I've mentioned previously, the report everybody is really waiting for is Friday's Personal Consumption Expenditures (PCE) index, which is the Fed's preferred inflation gauge. While it's expected to show inflation on the decline, just the like the CPI and PPI reports did from earlier this month, it's the last important data point before next week's FOMC announcement on January 31.
Nobody is expecting the Fed to cut rates this month, but everybody will be listening for any hint as to when they might begin. As of now, the odds are virtually even money that they begin cutting in March with 49.8% saying they do, while 50.2% say they don't. The odds dramatically improve for May with a literal 100% probability (based on CME's FedWatch Tool), that they cut. The only real disagreement is whether they cut by 100 basis points (0.7% chance), or 75 basis points (48.0% chance), or 50 basis points (50.2% chance), or 25 basis points (1.1% chance). Note, the Fed has been forecasting three 25 basis point cuts this year. But many are expecting 4-5 cuts (100-125 basis points in total). So there's plenty of difference between the Fed's current outlook and the market's.
And Friday's PCE inflation report could have an impact on the Fed's outlook, both in terms of timing and magnitude. In the meantime, the S&P, and the Nasdaq 100, continue to trade in record territory. Give or take a month or two, it looks like rate cuts are coming. And that's bullish for stocks.
See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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