Daily Brief - Wall Street Exhales

TLDR: In the latest twist of Wall Street's saga with inflation, traders braced for disappointment were met with a sigh of relief as the Federal Reserve’s preferred price gauge landed right on target.

In January, the core PCE price index rose by 0.4% monthly and 2.8% from a year ago—right on target with Dow Jones consensus estimates. This data point could be a pivotal factor as the Fed deliberates on rate cuts.

But with both headline and core inflation still above the Fed's 2% target, the path forward remains a balancing act.

The PCE index's alignment with estimates has served as a beacon of hope for investors, propelling stocks to all-time highs and marking the S&P 500's 14th record this year.

The report also highlighted an unexpected surge in personal income, climbing 1% against a forecast of just 0.3%. Meanwhile, consumer spending took a slight dip, contrasting with expectations for an increase. These figures underscore the ongoing economic shift from goods to services as the post-pandemic landscape continues to evolve.

Despite the headline and core PCE measures remaining above the Fed's annual inflation goal, the core's year-over-year increase is the lowest since February 2021, offering a glimmer of hope that inflationary pressures may be starting to ease.

Market Movers: If 10Y yields stay below 4.3%:

Here are the historically best and worst performing sectors when 10Y yields stay below 4.3%:

Top 3 Performing Sectors:

1. Information Technology, with an average 6-month return of 8.77%
2. Health Care, with an average 6-month return of 6.10%
3. Consumer Discretionary, with an average 6-month return of 5.99%

Bottom 3 Performing Sectors:

1. Real Estate, with an average 6-month return of 3.46%
2. Communication Services, with an average 6-month return of 3.18%
3. Materials, with an average 6-month return of 3.05%

Asset Spotlight: Improving US sentiment indicators

In the last 11 instances when sentiment indicators for the US improved, Toggle's analysis revealed a trend of a median decrease in the 10Y's yield over the following 6 months.

Earnings Update: Gitlab reports on Monday

Last quarter, Gitlab reported EPS of $0.09, surpassing the consensus estimate of -$0.01 by $0.10, with quarterly revenue amounting to $149.67 million, compared to the consensus estimate of $141.54 million.

For Q4 2024, GitLab anticipates revenue in the range of $157 million to $158 million, which represents a growth rate of 28% to 29% year-over-year. They also project a non-GAAP operating income of $5 million to $6 million and a non-GAAP net income per share of $0.08 to $0.09.

Discover how other companies could react post earnings with the help of TOGGLE's WhatIF Earnings tool.