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Let's set aside the political headlines for a moment and just focus on the earnings news. That, in isolation, has been good enough to jumpstart a stock market that had stalled due to rising interest rates.
The big banks got things going last week and there hasn't been any real letup this week with 3M (MMM) impressing and now Netflix (NFLX), United Airlines (UAL), Procter & Gamble (PG), Travelers (TRV), and Johnson & Johnson (JNJ) all exceeding their consensus earnings estimates.
Netflix is the standard bearer today, surging 15% after its better-than-expected Q4 report, which was replete with the biggest quarter of global streaming paid net ads in the company's history. To be precise, Netflix saw 18.91 million paid net ads versus its guidance of "higher than Q3's +5.07 million."
That is some astounding growth and it is a key driver of the gains in the equity futures market, which have also been bolstered by AI enthusiasm following yesterday's $500 billion Stargate announcement, a calm Treasury market, and presumably a fear of missing out on further gains.
Currently, the S&P 500 futures are up 35 points and are trading 0.6% above fair value, the Nasdaq 100 futures are up 221 points and are trading 1.0% above fair value, and the Dow Jones Industrial Average futures are up 168 points and are trading 0.4% above fair value.
That is setting the stage for a higher start for the cash market, which will have the market cap-weighted S&P 500 moving closer to the all-time high of 6,099.97 it reached on December 6.
Now, turning back to politics, this positive disposition has flourished in the midst of President Trump saying he is mulling a 10% tariff on China starting February 1 because it is sending fentanyl to Mexico and Canada. Meanwhile, The Wall Street Journal reports he is looking to renegotiate the USMCA before the scheduled 2026 review.
Thus far, the stock market has not found reason to fear the tariff approach for a variety of reasons: it isn't as onerous as expected at this stage; there hasn't been a retaliatory tit-for-tat; and there is a belief it is more of a negotiating tactic than an official policy.
Time will tell if the market's tariff comfort level remains intact, but it hasn't been a problem yet for stocks because it hasn't been a real problem yet for Treasuries under the new administration.
The 10-yr note yield, which hit 4.80% last week in front of the PPI report, is at 4.57% this morning. That is down four basis points since the inauguration, which isn't a big move; however, stability is just as important for a Treasury market that had seen yields racing higher ever since the Fed cut rates by 50 basis points last September.
There is some hope, though, that inflation trends will continue to improve, that productivity will increase with the help of AI, and that there will be a conscientious effort by the new administration to get government spending under control. That is supportive for Treasuries, which means it is also supportive for stocks until, or unless, market participants find reason to doubt these things or balk at paying high multiples for earnings.
Notably, JPMorgan Chase CEO Jamie Dimon told CNBC this morning that the stock market is "kind of inflated" while Goldman Sachs CEO David Solomon told CNBC that it is hard to dispute that equity multiples are high. To be fair, John Maynard Keynes reminded everyone long ago that "markets can stay irrational longer than you can remain solvent."
The stock market is what it is, and if confidence in the outlook remains high, it seems that there will be an allowance for multiples to remain high. Political developments and earnings results in the coming weeks will be all about shaping that confidence.
