Stocks Up For The Week On Economic Optimism  Image: Bigstock Stocks closed higher on Friday with the S&P and Nasdaq making another new all-time high in the process. And all of the major indexes closed higher for the week. Strong earnings and a rebounding economy continue to lift stocks. Traders were waiting to hear what Fed Chair Jerome Powell would say during Friday's Jackson Hole speech. And they clearly liked what they heard. In short, Mr. Powell said that "the pace of the recovery has exceeded expectations..." And it was his view that "the 'substantial further progress' test has been met for inflation," which led Fed watchers to conclude that they could begin tapering their bond buying in the coming months. The reason why the market cheered the news is because the chorus of concern over inflation had been growing louder and louder. And people began wondering when the Fed would do something about it. While the Fed has been hinting for the last couple of months that they would likely begin tapering soon, Friday's reiteration of that seemed to have struck the right tone. And with interest rates staying where they are for now and the foreseeable future (near zero), it's the best of both worlds -- let up on the monetary easing just a bit to tamp down inflation to a degree, but still keep the foot on the gas (zero rates) until we're back to full employment. In other news, Personal Income and Outlays showed personal income up 1.1% on a m/m basis vs. the consensus for 0.3%, while personal consumption was up 0.3% vs. the consensus for 0.5%. The personal consumption expenditure (PCE) price index was up 0.4% m/m, which was in line with expectations, and 4.2% y/y, which was slightly above the 4.1% consensus. The takeaway is that inflation is running a little hot (but the Fed is doing something about it), but personal income is strong. Consumer Sentiment ticked up to 70.3 from last month's reading of 70.2, although that missed expectations for 70.9. Some believe the sentiment numbers have been weaker because of the rise in inflation. But if inflation truly does prove to be transitory, we could see these numbers back on the upswing.
Of course, the concern over Covid affects sentiment as well. That's the unknown. And even the Fed stressed that it remains a risk. But as long as the economy keeps rebounding, and life continues to move to something closer to normal, that should buoy sentiment.
Tracking consumer sentiment and consumer confidence is always looked at closely since roughly 70% of our GDP comes from consumer spending. And a healthy and optimistic consumer is bullish for the economy.
With stocks at or near their all-time highs, which continues to be fueled by good news on the economy and strong corporate earnings, it looks like there's a lot more upside to go. So make sure you're taking full advantage of it. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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