The major U.S. stock indexes advanced over 2.0% last week as the first quarter’s earnings season comes to an end. Equity markets were primarily supported by a sharp rise in the energy sector and softer-than-expected U.S. consumer inflation data which may have dampened the Fed’s plan for a third rate hike in 2018.

In the cash market, the benchmark S&P 500 Index settled at 2727.72, up 2.4%. The benchmark Dow Jones Industrial Average finished at 24831.17, up 2.3% and the tech-driven NASDAQ Composite closed at 7401.09, up 2.7%.

Equities were supported and driven sharply higher as crude oil hit multi-year highs in response to President Trump’s announcement that the U.S. would be withdrawing from the Iran nuclear accord. Energy stocks rose as analysts predicted the possibility of $80 to $100 crude oil later this year.

Stocks strengthened further after the Labor Department said on Thursday its Consumer Price Index rebounded less than expected in April.

U.S. consumer inflation rose 0.2 percent versus an estimate of 0.3%. Core CPI rose 0.1 percent, lower than the 0.2% estimate. Stocks rallied because the report suggests the Fed will be less-aggressive with its plan to raise interest rates later this year. Currently, the market is pricing in 2 or 3 more rate hikes in 2018.

In other news, with more than 90% of the companies in the S&P 500 having reported earnings for the first quarter, results are on pace to be the strongest since the third quarter of 2010. According to Edward Jones Advisors, “Particularly encouraging is the 8.2% average revenue growth, the strongest increase in sales since the third quarter of 2011, reflecting an improving economic backdrop and rising confidence/investment. Looking ahead, expectations are for 19.2 profit growth in 2018, setting a strong foundation for the ongoing bull market.”

Forecast

Last week’s rally and the 5.5% gains from April lows is no fluke. Investors are responding to strong economic readings in May, including an 18-year low in unemployment and healthy consumer confidence, which signal sustained growth.

April CPI report showed that inflation remains sufficiently contained to allow the Fed to maintain its gradual approach to raising rates.

Additionally, corporate earnings rose nearly 25% in the first quarter, the strongest since the third quarter of 2010.

Coming into this week, however, we have to treat those events as old news and focus on this week’s reports which include retail sales and building permits.

Furthermore, volatility isn’t going away either so don’t get complacent when it comes to the potential for wild swings in the market. There will be worries, for example, the ongoing negotiations between the United States and China over trade issues and the impact of high gasoline on economic growth.