Positive Conditions Continue as Market Digests Apple Earnings and PCE Inflation News
Here's why I'm optimistic amid all that's happening.
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A positive response to Apple AAPL earnings and continued momentum in smaller stocks is pushing the indexes to a positive start, but PCE inflation data will be released at 8.30 a.m. ET and could shake things up.
Surprisingly, the market doesn't seem very concerned about President Trump's comments that he is ready to impose tariffs on Mexico and Canada. There are indications that Trump is still trying to negotiate a deal and that is why there is not a stronger reaction.
Apple is trading higher after guidance for the March quarter, which was better than feared. CEO Tim Cook sent the message that Apple's AI initiatives are starting to pay off, and that has resulted in a round of profit-taking. Apple is trading with a trailing P/E of 34 and has anticipated EPS growth of around 10%, but it is Apple, so that doesn't matter.
We'll see if the PCE inflation news has an impact. The Fed has indicated that it is going to be sitting on the sidelines for a while, but if we start to see some hot data, it will remove the chances of any rate cut in 2025. While bonds have been acting better, that could change quickly if inflationary pressure flares up again.
The biggest positive currently is that market breadth is very strong, and there is more interest in smaller stocks that have lagged for so long. Small-cap stocks are trading at a historically extreme discount to large-caps, which tends to eventually lead to small-cap outperformance. The timing of that outperformance is difficult, but conditions look very good for small stocks to act better while the market grapples with some of the extreme valuations in big-cap technology.
I'm being much more aggressive with individual stock picking and looking forward to seeing small-cap earnings reports starting next week.
Overall, market conditions are good, and some healthy speculative action is taking place. I remain optimistic.
At the time of publication, Rev Shark had no positions in any securities mentioned.
