The US stock market soared to new heights last week, with major indices reaching record levels driven by strong earnings reports and easing inflationary pressures. Both the S&P 500 and Dow Jones Industrial Average hit all-time highs, reflecting growing investor confidence as the earnings season kicked off, particularly in the financial sector.

During the week leading up to 14 October 2024, the S&P 500 climbed 0.61% to close at a record 5,815.03, while the Dow Jones Industrial Average surged 0.97%, ending at 42,863.86. These increases marked five consecutive weeks of gains for both indices, driven by blue-chip stocks. The Nasdaq Composite also rose by 0.33%, closing at 18,342.94, just shy of its all-time peak.

Investor optimism was particularly boosted by stellar earnings reports from major banks. JPMorgan Chase saw its stock jump 4.4% after outperforming expectations, while Wells Fargo shares climbed 5.6%, despite a slight drop in net interest income. These strong results helped propel the broader market upwards, assuring investors about potential growth prospects.

Additionally, inflation concerns were somewhat alleviated by a cooler-than-expected Producer Price Index (PPI) for September, which tempered fears following the Consumer Price Index (CPI) report. The financial sector was the primary beneficiary of this data, aligning with the overall bullish trend on Wall Street.

However, not all sectors participated in the rally. Technology and consumer discretionary stocks saw some pullbacks, with Tesla dropping 8.8% after disappointing investors during its recent robotaxi event. This divergence highlights the selective nature of the market rally.

Looking ahead, the upcoming retail sales report will provide further insights into consumer health, with market participants keen to see if economic momentum can continue beyond the earnings season. The recent September jobs report, which showed stronger-than-expected job growth, has fuelled speculation over the Federal Reserve's next move regarding interest rates.

Bond yields remain a topic of discussion, with the 10-year Treasury yield hovering around 4.1%, the highest since July. While higher yields can typically weigh on stocks, they have so far had a limited impact on the broader indices, though analysts caution they could become a headwind if inflation persists.

Investors are reminded that markets often cluster around new highs, with historical data showing that staying invested during record-setting periods can lead to substantial long-term gains. For instance, investors who remained in the market following earlier highs this year have already seen strong returns. On average, stocks have generated a 20% total return two years after hitting new peaks.

Key earnings reports are expected in the coming week, with Netflix being closely watched. The streaming giant is projected to report earnings per share of US$5.16 on revenue of US$9.77 billion, and analysts will be looking to see if the company can maintain its growth trajectory amid increasing competition.

While the market's bullish outlook continues, caution remains essential. Analysts advise investors to stay informed and vigilant, especially as rising interest rates and shifting consumer behaviour could impact different sectors. Balancing optimism with prudence may be key to navigating this dynamic environment.

As 2024 progresses, the US stock market offers both opportunities and challenges for investors, with thoughtful, long-term strategies likely to be rewarded in this ever-evolving landscape.

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