The Dow and S&P 500 are trying to build on records as earnings season ramps up

What is happening

While the S&P 500 finally returned to record territory on Friday, skeptical investors are questioning the strength of the rally given stretched valuations.

“With forward multiples already at historic highs and 12-month forward earnings forecasts ambitious, stock market gains may stall in 2024, as better earnings are offset by lower valuation multiples that characterize a mid-cycle or soft landing environment,” said Lisa Shalit, chief investment officer. A Morgan Stanley Wealth Management official said in a note.

While 2023 S&P 500 earnings are currently expected to be between $219 and $221, the 2024 consensus is between $242 and $244. Morgan Stanley's estimates are slightly lower than that, she said.

“To push the index to the 5,000 level, investors would need to confidently price upside to $250 by mid-year. This is a likely extension, given the level of uncertainty we expect,” she wrote.

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The Magnificent Seven tech giants have now technically moved into overbought conditions, said Matthew Tuttle, CEO and chief investment officer at Tuttle Capital Management.

“My feeling is that we're not going anywhere quickly until we resolve the disagreement between the market and the Fed over interest rate cuts, but don't underestimate the power of the bulls when they start to move,” Tuttle said.

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Earnings season is heating up this week with results due from companies including… IBM
ibm,
+0.82%,
Netflix
nfx,
+0.67%
And Tesla
TSLA,
-1.95%.

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The Conference Board's leading economic indicator of the U.S. economy fell again in December for its 21st straight decline, but a widely expected recession looks no closer than it did when the long losing streak first began. The benchmark index fell 0.1% last month, but it was less than the expectations of economists polled by the Wall Street Journal for a 0.3% decline.

It is worth noting that later this week the GDP and PCE inflation measure will be released, in addition to interest rate decisions from the European Central Bank and the Bank of Japan.

Chinese plays continued to struggle, with the Hang Seng Index (HK:HSI) falling another 2.3% to start the week, although European stock markets XX:SXXP advanced.

Companies in focus

• Archer Daniels Midland
  Adam,
  -22.54%
  He was in the spotlight Monday as the agribusiness giant said it had placed its chief financial officer on administrative leave while it investigates accounting in its nutrition sector. Shares fell 21%.

• Sunoco LP
  sun,
  -5.40%
  And Nustar Energy LP
  NS,
  +17.72%
  The company said Monday that they had agreed to merge in an all-stock deal worth about $7.3 billion, including debt. NuStar shares jumped 18%, while Sunoco shares fell 4.4%.

• Dow component stocks Boeing Company
  Bachelor's,
  -0.95%
  It fell 0.6% after the Federal Aviation Administration recommended inspecting more of the airline giant's plane models.

• shares Gilead Sciences Inc
  Watered / painted,
  -10.17%
  The company's stock fell more than 10%, retreating from an 11-month high, after the biotechnology company reported disappointing lung cancer trial results.

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—Steve Goldstein contributed