Markets rallied strongly post-election, buoyed by optimism surrounding a new Pro-Growth era under the incoming administration. Adding to the momentum was last week’s .25% rate cut by the Fed along with the Fed Chair Jerome Powell’s upbeat comments about the economy, coupled with his acknowledgment of “significant progress on inflation”. Powell also hinted at the possibility of another rate cut in December, noting that policy remains restrictive despite the latest adjustment.

We have another busy week of earnings ahead, along with the elections on Tuesday and the Fed meeting on Thursday. The current odds are fully suggesting the Fed will cut rates by .25%, but all eyes will be analyzing what the Fed sees for future rate cuts. We will also get a peek at business conditions with Tuesday morning’s S&P Global and ISM PMIs.

Altogether, last week’s economic data underscored a favorable environment for stocks and bonds, supporting the Fed’s plan to ease rates gradually. Earnings and revenues came in “fine” but according to Factset, the forward 12-month P/E ratio is 21.7, which is well above the 5- and 10-year average, so it was no surprise to see some relatively mild profit-taking.

Last week brought a series of positive developments. Earnings were generally solid, with strong results from banks and some of the key technology companies. Economic data also supported the soft-landing narrative, with solid retail sales and a drop in jobless claims. On the geopolitical front, China announced more stimulus, and Israel’s assurance of avoiding escalation in Iran helped ease tensions.

This positive momentum was fueled by mixed economic data: unchanged wholesale inflation (PPI) signals potential progress in controlling price increases, while hotter-than-expected inflation data (CPI) earlier in the week kept uncertainty alive around the Federal Reserve’s future rate decisions. A negative jobless claims report was shrugged off as “temporary” due to recent storms and strikes, and investor sentiment remained upbeat, with all major indices posting weekly gains.