Earnings to Watch (AAPL, MSFT, NVDA, TSLA)

Stocks might have ended Friday’s trading session somewhat mixed, but the market completed the second week of new year in positive territory as investors received more confirmation that the long-awaited Fed pivot has indeed arrived.

Wholesale prices unexpectedly declined in December, providing a positive signal for inflation, according to data released Friday by the Labor Department. The Producer Price Index, the Fed’s preferred inflation gauge, edged down by 0.1% in December. This is compared with the 0.1% increase expected and the 0.1% decrease in November (revised from 0.0%). As it stands, on a year-over-year basis, wholesale prices rose just 1.0%, which is far less less than the 1.3% increase expected. For some context, the index had surged 6.4% in 2022.

Meanwhile, for full-year 2023, when excepting for food and energy, the final demand measure rose 2.5%, compared to being up 4.7% in 2022. Given the drastic inflationary improvement we have seen over the past year, and especially since the highs of 2022, the market is now celebrating the highly-sought after soft landing by the Fed. Furthermore, the report on Friday showed that prices for final demand goods declined 0.4% in December, marking the third consecutive month of decreases.

It appears that as we move deeper into 2024, any pricing pressure, particularly from the supply side, is becoming none-existent. Just as encouraging, on the services side, which Fed monitors closely, prices have not changed for three consecutive months. When we put all of this together, it affirms that the Fed is not only done hiking interest rates, there is now a strong bet that there will be at least one rate cut in the first quarter of 2024.

The fed funds futures market are pricing in about a 70% probability that this will happen during the March meeting, according to the CME Group’s FedWatch tracker. At this point, it’s not hard to imagine there will be potentially three more rate cuts to follow by the end of the year. As far as stock reaction, there were still some profit taking on Friday. The Dow Jones Industrial Average fell 118.04 points, losing 0.31% to close at 37,592.98. The S&P 500 rose 0.08%, or, 3.59 points finishing at 4,783.83.

The tech-heavy Nasdaq Composite index, meanwhile, added 2.58 points, or 0.2%, to end the session at 14,972.76. For the week the Dow saw a 0.34% rise, while the S&P 500 enjoyed a weekly gain of 1.84%. The Nasdaq, however, was the biggest outperformer, rising 3.09% through Friday’s close. As for the market’s next direction, many of these questions will be answered in the coming weeks as we enter the fourth quarter earnings, particularly as it includes the all-important holiday shopping season.

Another key area the market will be watching is whether the big tech powerhouses — specifically the “Magnificent Seven” — can continue moving higher. These mega-cap tech giants, consisting of Alphabet (GOOG , GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA), are poised be winners once the rate cut cycle begins.

That said, the fervor surrounding the Magnificent Seven stocks have raised questions as to whether there remains any room for more gains in 2024. It’s a reasonable question. These stocks contributed some 60% of last year’s 24% total return for the S&P 500. Tesla doubled in value, gaining 105%, while Meta enjoyed a remarkable return of 193%. Then there’s last year’s AI darlings Microsoft and Nvidia: In 2023 Nvidia produced a a breathtaking return of 243%. Investors will want to know if both Nvidia and Microsoft can continue driving the AI-related resurgence the market has enjoyed over the past year.

How can they keep investors bullish about the likelihood that the “AI trade” still has a massive runway left, or how long is that runway? Those are questions both companies will have to answer to keep the momentum going. Understandably, when assessing the Magnificent Seven, investors are wondering whether there is still room for gains in 2024. But while their collective valuation might have gotten a bit stretched, sticking with these winners seems to remain the best strategy for the time being.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.