The S&P 500 (^GSPC) surged to a record high last week as new inflation data reinforced expectations of potential Federal Reserve rate cuts. The Nasdaq Composite (^IXIC) led the gains, climbing over 2.5%, while the S&P 500 rose nearly 1.5%, and the Dow Jones Industrial Average (^DJI) added about 0.5%.
This week, corporate earnings season continues, with Alibaba (BABA) and Walmart (WMT) among the 46 S&P 500 companies set to report quarterly results. However, economic data releases will be relatively muted, with key investor focus on the Federal Reserve’s January meeting minutes, as well as updates on manufacturing, services activity, and consumer sentiment. Markets will remain closed on Monday for Presidents’ Day.
Last week’s inflation reports revealed that January price increases exceeded Wall Street expectations. However, economists noted signs of cooling inflation within the details. Core Personal Consumption Expenditures (PCE), the Fed’s preferred inflation gauge that excludes food and energy, is now expected to have slowed to 2.6% in January from 2.8% in December. This supports market expectations of one or two Fed rate cuts in 2025, according to Bloomberg data.
Morgan Stanley chief U.S. economist Michael Gapen emphasized that while inflation risks remain, the likelihood of further Fed rate hikes is low. “We think the bar for Fed hikes remains high,” Gapen wrote in a client note, adding that inflation expectations and tariff-related effects on services will be closely monitored. However, current indicators suggest the Fed is more likely to cut rates than raise them.
Investors will closely analyze the Fed’s meeting minutes, set for release on Wednesday at 2 p.m. ET, for further insight into the central bank’s stance on interest rates moving forward.
