The recent performance of the S&P 500 index has been nothing short of impressive. In the latest trading week, this benchmark recorded its best start after a new government took office since 1985. Such a remarkable rise, however, leads investors to speculate whether this bullish trend can be sustained in the upcoming days filled with critical economic updates. The forthcoming week will bring a torrent of financial reports that are set to test the resilience of this rally.

Among the companies reporting their earnings are a plethora of industry stalwarts, with over a hundred firms from the S&P 500 planning to declare their financial results. Eyes will undoubtedly be on the towering tech giants Meta, Microsoft, Apple, and Tesla, as their performances can substantially sway investor sentiment. Additionally, more traditional powerhouses such as Starbucks, ExxonMobil, and Chevron will also be unveiling their financial standings. These earnings announcements will provide crucial insights into the health of the respective sectors and the economy as a whole.

This Thursday, the Federal Reserve is slated to announce its latest monetary policy decisions. Current market expectations suggest that the Fed will hold interest rates steady. Investors will be keenly observing the remarks by Chairman Jerome Powell, specifically concerning policy projections for 2025, as these comments could further influence trading dynamics.

In the shortened four-day trading week of the previous week, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all posted robust gains. Over the past five trading days, the S&P 500 and the Dow surged by more than 2.8%, while the Nasdaq, heavily influenced by tech stocks, outperformed with an increase exceeding 3.1%. This increase highlights significant investor optimism, particularly in the tech sector, which has been a crucial driver of market performance.

The spotlight is keenly focused on the Federal Reserve once again, with significant economic news on the horizon this week. The upcoming monetary policy decisions—typically a catalyst for market fluctuations—underscore the importance of the data being released. The Chicago Mercantile Exchange indicates there is nearly a 100% probability that the Fed will opt to keep rates unchanged when they unveil their policy decisions on Monday.

Jerome Powell’s press conference, scheduled for 2:30 p.m. ET on Wednesday, is anticipated to be a pivotal moment for markets. Observers will be eager to hear not only the official statement but also Powell's stance on engaging inflation concerns and economic growth projections. His remarks could play a crucial role in shaping market sentiments.

During a recent appearance via video at the World Economic Forum in Davos, Powell drew attention when he called for an "immediate rate cut" in light of falling oil prices. Such comments stirred discussions about a potential discord with the Federal Reserve's current strategy and objectives, igniting curiosity about how these conflicts could influence future monetary policy.

Yet, according to Michael Feroli, Chief U.S. Economist at JPMorgan, this upcoming presser may not deliver the usual excitement that such events typically bring. In his assessments, Feroli expressed an expectation that Powell will adopt a more cautious communication style, suggesting that members of the Federal Open Market Committee are individually contemplating their unique assumptions when contemplating future policy decisions. The only agreement to be finalized is the monetary policy statement that the committee can reach by next Wednesday.

In addition to the Fed’s decisions, several key indicators of U.S. economic health will also be released this week. On Thursday, the advanced reading of the fourth quarter GDP is anticipated to show a 2.6% annualized growth rate for the last three months of 2024, a decrease from the previous quarter's 3.1%. This provides valuable insight into the economic momentum heading into 2025.

The following day, the pivotal Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation gauge, will be released. Economists forecast that the "core" PCE index, excluding volatile food and energy prices, will stabilize at a year-over-year rate of 2.8% in December, consistent with November’s figures, but with a month-over-month increase of 0.2% compared to last month's 0.1% rise. Such data will further refine assessments of inflationary pressures as the Fed maneuvers through the complex economic landscape.

Blake Gwinn, Head of U.S. Interest Rate Strategy at RBC Capital Markets, points out in a report to clients that the data to be released later this week, combined with U.S. policy movements, could cast the Fed in a "third role" in the markets. He believes that either the forthcoming commentary or data could quickly render Powell's words during the press conference obsolete.

Additionally, as the earnings season unfolds, companies within the S&P 500 have started strong with initial reports, with FactSet projecting that the benchmark index's earnings per share for the fourth quarter are expected to rise by 12.7% compared to the previous year. However, this growth is heavily contingent on the so-called 'Magnificent Seven' tech stocks, which include Tesla, Meta, Microsoft, and Apple—each set to report their results within the week.

The market anticipates that these seven tech companies will report an aggregate earnings growth of 21.7% in the fourth quarter, significantly higher than the expected 9.7% growth from other 493 stocks in the index. However, projections indicate that this growth disparity is likely to decline by 2025, prompting many stock strategists to recommend diversifying beyond large tech stocks.

Nonetheless, as Barclays’ head of U.S. equity strategy, Venu Krishna, noted in his 2025 outlook, the projections for substantial earnings increases for large technology companies throughout the year signify that these seven firms may continue being key drivers of earnings growth for the S&P 500, much like they were in 2024. It remains noteworthy that market sentiment generally anticipates that the profit growth of these tech giants will moderate in the first half of the year before re-accelerating in the latter half.