US data drives equities higher, although inflation remains key

Stocks are on the rise in the wake of positive jobs, growth, and manufacturing data. However, that ability to treat good news as a positive for equities will be reliant on continued inflation declines, says Joshua Mahony, senior market analyst at online trading platform IG.

Equities on the rise as US data dump boosts soft landing hopes

“Tech stocks are leading the push higher for US equities today, as a raft of better-than-expected data brings greater confidence that we could be in for a soft landing. Despite expectations that we will see substantial demand destruction as recessionary pressures grow, today’s data deluge brought some optimism that US equities could face a less difficult period after-all. A sharp rise in durable goods orders, better-than-expected GDP, and falling initial jobless claims brought calm within markets that have seen jitters in the face of earnings concerns. However, the fact is that Q4 earnings season has been characterised by better-than-expected earnings (69% beat estimates) and revenues (67% beat estimates). To a large extent this reflects the fact that economists have come into this earnings season with a pessimism that provides a relatively low bar for companies to overcome. ”

Good news is good news, for now

“Today’s positive reaction to improved economic data reflects a willingness to take things on face value, rather than focusing on the implications for monetary policy. Despite the Fed dot plot signalling that interest rates will start to move lower in 2024, markets are pricing in a reversal as soon as Q4 2023. However, that optimism could shift if inflation remains stubbornly high and a relatively resilient economy provides the basis for a prolonged period of elevated rates from the Fed. With that in mind, today’s willingness to treat good news as good for stocks is reliant on inflation continuing to trend lower. With this week’s jump in Australian CPI fresh in our mind, all eyes now turn to tomorrows US core PCE inflation readout. ”