Very positive consumer confidence and retail sales data, along with strong earnings and positive comments from multiple, major companies, have finally made the Street see that the economy can perform well even if interest rates aren’t extremely low or poised to sink sharply. Meanwhile, the economic expansion still is likely to continue to be rather strong for a long time and the Federal Reserve remains poised to cut interest rates later this year.
Given these points, I still believe that the economy and stocks will perform very well in the short term and the medium term. Here’s what this burst in consumer confidence will mean for the market moving forward.
Positive Consumer Confidence Data
On Jan. 19, the University of Michigan reported that its index of consumer confidence had come in at 78.8, representing a gain of 21% versus the same period in 2023 and its “highest level since July 2021,” CNBC reported. Also noteworthy is that the index’s gain in the last two months was the greatest advance over such a period in more than 30 years.
Moreover, consumers on average expect inflation in January 2025 to be 2.9%, versus 3.1% last month representing ” the lowest reading since December 2020.”
Meanwhile, retail sales climbed a very impressive seasonally adjusted 0.8% in December versus November, excluding the volatile food and energy categories. The metric jumped 5.6% versus the same period a year earlier, outpacing inflation by a considerable margin
Taken together, the data shows that many consumers are thriving while Americans’ overall economic backdrop is improving.
Upbeat News From Companies
JPMorgan’s (NYSE:JPM) top line jumped 19.69% quarter-over-quarter while its net income, excluding special items, also increased marginally. Indeed, CEO Jamie Dimon stated, “The U.S. economy continues to be resilient, with consumers still spending, and markets currently expect a soft landing.”
Meanwhile, boding very well for tech stocks, one firm reported that their financial results were being tremendously boosted by the AI revolution.
Super Micro (NASDAQ:SMCI), which makes hardware and servers that facilitate the development of AI, greatly increased its top-and-bottom-line guidance for its quarter that ended in December. Specifically, the firm now expects its revenue to come in at $3.6 billion to $3.65 billion versus its previous outlook of $2.7 billion to $2.9 billion. The firm also hiked its earnings per share forecast, excluding special items, to $5.40 to $5.55 from $4.40 to $4.88.
Continued Strong Economic Expansion and Fed Cuts Still Likely in 2024
The Fed estimates that the economy expanded at a seasonally adjusted annualized rate of 2.5% above inflation last quarter. That’s a rather robust growth rate.
What’s more, two members of the Fed’s interest rate-seeing Open Market Committee, Christopher Waller and Austan Goolsbee indicated, that the central bank is likely to cut rates sometime in 2024.
Given the upbeat consumer confidence numbers, the economy’s strength, the boost that the tech sector is getting from AI, and the Fed’s intention to cut rates, the short-term and medium-term outlook for stocks is quite positive.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
