Despite the ups and downs, the start of earnings season brought mixed results from a handful of major banks, and investors are cautiously optimistic about the market's trajectory going forward.
Gerry Sparrow
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Stocks got off to a rough first week of the new year, with tech names leading the week's decline. Several market observers called it the 'reverse Goldilocks' effect, where the market decided investors were getting a little too excited over the prospect of a Fed rate cut.
The rally continued the following day as beneficiaries of lower rates, such as smaller capitalization stocks and real estate, rallied.
The relationship between the bond and stock markets, which pushed stocks higher in November, disappeared last week, with stocks falling in the first three days of the week despite declining yields.
The stock market digested November's robust gains for much of last week but rallied strongly amid falling bond yields on the last trading day.
The release of the minutes from the Fed's last meeting further boosted investor optimism, as many Fed officials reaffirmed that monetary policy must remain restrictive until inflation is on track for the Fed's two percent target.
The recent rally in the stock market can be attributed to a better-than-anticipated consumer inflation number, which sent bond yields sharply lower and ignited a powerful rally.
Despite signs of a cooling labor market, with employment data showing a lower-than-expected growth in new private sector jobs and an uptick in the unemployment rate, the market remains optimistic about the future.
Stocks retreated last week despite mostly better-than-expected earnings results, with investors troubled by declines in year-over-year net profit margins and tepid earnings guidance.
Stocks rallied to start the week on earnings optimism before losing momentum over rising bond yields, as the 10-year Treasury yield moved above 4.9% for the first time since 2007.
Stocks exhibited remarkable resilience in the face of a surprise attack on Israel and hotter inflation data than investors expected. Stock prices initially buckled on the breakout of hostilities in the Middle East.
A stronger-than-forecast retail sales report and a modest increase in core producer prices initially lifted sentiment, but consumer confidence and semiconductor news soon dented Thursday's optimism.