Stocks saw a fourth week in a row of solid buying, with the S&P 500 up 1.5% to 2,351 and the Dow Jones Industrial Average higher by 1.75% to 20,624. Cisco (CSCO), Pfizer (PFE), and Boeing (BA) led the gains for the Dow, while Mallinckrodt (MNK), Stericycle (SRCL), and Cerner (CERN) were the largest gainers on the S&P 500.
The highlight of the week was the strong, encouraging economic data. Producer price index (PPI) indicated that underlying inflation pressure may be building, with the index coming in at a much higher-than-expected 0.6%. Consumer price index (CPI) rose 0.6%, the strongest reading in nearly four years. The headline y/y rate is well above the Fed's 2% target at 2.5%. In addition, the Philly Fed index reading 43.3 is the highest print since January 1984. This survey looks at general business conditions, asking a question regarding monthly sentiment.
While US Earnings are growing nicely in the latest quarter, the earnings stagnation ended for European stocks. According to the WSJ, “European companies are posting their first rise in earnings for four years, giving local stocks a boost and promising further gains for markets.” On top of this, Cummins (CMI) is seeing increasing demand in China for its engines, “for the first time in a number of years, there are some early signs that point towards improvement in 2018.”
Finally, US earnings season continued, and as of February 15th, according to Zacks, 375 S&P 500 members have now reported results. Of these 375 reports, earnings are up +7.2% on revenues higher by +4.6%, with 68.8% beating EPS estimates and 54.4% coming ahead of top-line expectations. The earnings and sales growth rates are a solid improvement over previous quarters.
Looking forward to next week, PMI data and the Fed's meeting minutes will be in focus for investors.