The S&P 500 halted a six-day winning streak on Friday but ended positive for the week. Five of those six days, the S&P 500 had closed at fresh all-time highs. Economic data largely supported a healthy soft-landing outlook, somewhat tainted by several less-than-ideal earnings. The S&P 500 gained 1.07% following a 1.19% advance the week prior. The Dow Jones Industrial Average rose 0.65% and the Nasdaq Composite gained 0.94%. Weekly gains among Russell indices were strongest in small caps, with the Russell 2000 up 1.75%. This week marks the peak week of Q4 earnings season with ~40% of S&P's market cap set to report.

For the full year, real GDP increased 2.5% in 2023, compared with the estimate for 2.4% growth, and compared with the 1.9% increase in 2022. The U.S. economy grew at a 3.3% annual rate in the fourth quarter, according to the Commerce Department, topping estimates in the 1.7%-2.4% range. While the data topped economists’ expectations, it is still lower than the third quarter’s 4.9% reading. The fourth-quarter’s GDP growth was led by several factors, including consumer spending, exports, and state and local government spending.

Consumer spending has been a consistent strong point for the U.S. economy, despite high interest rates and inflation. Consumer sentiment at the beginning of January jumped to its highest reading since July 2021, according to the University of Michigan. Retail sales for December came in above expectations, too. December’s unemployment was 3.7%, near a historic low.

The latest reading on U.S. inflation in December puts the Federal Reserve closer to cutting interest rates as continued jobless claims rise. Inflation, as measured by the personal-consumption-expenditures price index, was up 0.2% in December while easing to a 2.6% rate of increase year over year, according to a report Friday from the Bureau of Economic Analysis. The pace of annual core PCE inflation, which excludes food and energy prices, slowed to 2.9% from a rise of 3.2% in the 12 months through November. Total PCE inflation in December was the slowest since March 2021. The PCE numbers suggest that so far the Fed has been successful in taming inflation while avoiding a recession. This may bolster the case that the central bank can cut rates soon. Traders are currently pricing in that potential rate cuts are most likely to begin in May of this year.

Meanwhile, continued jobless claims increased more than expected in mid-January, but remain at low historical levels. The Federal-funds-futures market points to the Fed holding its benchmark rate at the current target range of 5.25% to 5.5% at its January policy meeting this week. The Fed statement is expected to drop its tightening bias and the Powell press conference will likely stress data dependence and cautious/gradual approach to expected rate cuts.