S&P 500 Gets Late-Day Boost to Finish at Record: Markets Wrap

(Bloomberg) — Wall Street traders sent stocks higher in the final stretch of a quarter that saw the market surge 10%, with many institutional investors potentially rebalancing their portfolios.

In another volatile session, the S&P 500 closed at a record after almost erasing gains earlier Wednesday. Apple Inc. and Tesla Inc. — this year’s laggards in the megacap space — climbed, while Nvidia Corp. fell. The Dow Jones Industrial Average added over 1%. The Nasdaq 100 underperformed. Treasuries rose, with the market set to close at 2 p.m. New York time on Thursday before the holiday.

“The S&P 500 continues to defy all of the naysayers and closed at another record,” said Chris Zaccarelli at Independent Advisor Alliance. “Despite the fact that inflation has remained stubbornly high, investors are more impressed with the state of the economy and the resilient consumer than they are worried about Fed rate cuts being pushed of farther into the future.”

Every quarter-end, institutional investors check their exposures to ensure they meet allocation limits between equities and bonds, as well as between domestic and international shares. With stocks set to cap a solid quarter, pension funds are likely to sell an estimated $32 billion in equities to rebalance their positions, according to Goldman Sachs Group Inc. 

“At the end of almost every quarter, we hear chatter around Wall Street that there is going to have to be some big rebalancing play,” said Matt Maley at Miller Tabak + Co. “Maybe the quarterly rebalancing that everybody talks about each quarter, but rarely has much impact, just might create some more interesting moves before the week (and quarter) are over.”

The S&P 500 approached 5,250. Merck & Co. rallied as a new drug for a rare form of high blood pressure got US approval. Former President Donald Trump’s Trump Media & Technology Group Corp. powered higher after a stellar Nasdaq debut. Treasury 10-year yields declined four basis points to 4.19%.

Traders also awaited Federal Reserve Governor Christopher Waller’s remarks at an event after the close.

To Thierry Wizman at Macquarie, Waller may offer a “rebuke of Jay Powell’s dovishness.”

“While not dismissing the prospect of a June cut, Waller may point to sturdy US aggregate demand and ‘sticky’ inflation in the January and February data to justify fewer rate cuts than the median ‘dots’ imply,” Wizman noted.

Gentle rate cuts could create a mildly supportive environment for risk assets — which could also be helped by a high level of cash on the sidelines, according to Kristina Hooper at Invesco.

“For those who believe that such cuts are already priced into stocks and fixed income, I would argue that there are other catalysts,” Hooper said. “Keep in mind there is a high level of cash sitting on the sidelines, some of which could rotate into equities and fixed income, especially if rates begin to fall and/or more investors develop a fear of missing out.” 

To illustrate, she cited the fact that money-market assets peaked in the fourth quarter of 2008 before dropping significantly.  

“It seems no coincidence that cash started to move off the sidelines just as stocks began a strong and lengthy multi-year rally in March of 2009,” she concluded.

After the S&P 500 soared about 25% since late October, many have flagged concern that positioning is stretched and stocks are more vulnerable to short-term profit taking.

“While we expect this bull market to continue, we wouldn’t be surprised if we see a 5%-7% correction,” said Gina Bolvin, president of Bolvin Wealth Management Group. 

Still, the artificial-intelligence tailwind, lower rates, falling inflation, good earnings growth are a “powerful combination” that could potentially set the market up for more gains this year — even though stocks are expensive, she noted.

“History shows us that momentum begets momentum,” Bolvin added.

JPMorgan Chase Co.’s Dubravko Lakos-Bujas warned clients on Wednesday that they could be “stuck on the wrong side” of the momentum trade when it eventually falters, and he encouraged them to consider diversifying their holdings and thinking about risk management in their portfolios. He also reiterated his warning that excessive crowding in the market’s best-performing stocks raises the risk of an imminent correction.

A blistering five-month rally in US equities has indeed seen valuations soar, but plenty of corners in the S&P 500 are still historically cheap.

At the sector level, eight of 11 groups trade at a discount compared to pre-pandemic levels — while only technology, materials, and industrials are trading at a premium, according to Bloomberg Intelligence data.

Meanwhile, nearly three fourths of the gauge trade below its capitalization-weighted price-to-book ratio — a measure that compares market capitalization to book value, used to find undervalued pockets of the market, BI’s analysis showed. A similar share of companies, 71%, carry forward-price-to earnings multiples beneath the index level, with roughly half below their average before Covid.

Corporate Highlights:

• Amazon.com Inc. says it’s investing an additional $2.75 billion in Anthropic, completing a deal it made last year to back the artificial intelligence startup and expand a partnership between the companies.
• Robinhood Markets Inc., best known for offering commission-free trading, is rolling out a credit card to US consumers as it looks to become a broader financial-services company.
• Carnival Corp. slightly raised its outlook for 2024 amid record setting demand for cruises. However, the company also citied a negative impact related to the collapse of Francis Scott Key Bridge in Baltimore and is continuing to feel the effects of conflict in the Red Sea region.
• Fisker Inc. dramatically reduced the price of the Ocean sport utility vehicle — its only model — as the electric-car maker struggles to stay in business.

Key events this week:

• UK GDP revision, Thursday
• US University of Michigan consumer sentiment, initial jobless claims, GDP, Thursday
• Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday
• US personal income and spending, PCE deflator, Friday
• Good Friday. Exchanges closed in US and many other countries in observance of holiday. US federal government is open.
• San Francisco Fed President Mary Daly speaks, Friday
• Fed Chair Jerome Powell speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.9% as of 4 p.m. New York time
• The Nasdaq 100 rose 0.4%
• The Dow Jones Industrial Average rose 1.2%
• The MSCI World index rose 0.6%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0827
• The British pound was little changed at $1.2638
• The Japanese yen rose 0.2% to 151.33 per dollar

Cryptocurrencies

• Bitcoin fell 1.5% to $68,745.2
• Ether fell 2.2% to $3,495.85

Bonds

• The yield on 10-year Treasuries declined four basis points to 4.19%
• Germany’s 10-year yield declined six basis points to 2.29%
• Britain’s 10-year yield declined four basis points to 3.93%

Commodities

• West Texas Intermediate crude was little changed
• Spot gold rose 0.7% to $2,194 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Jan-Patrick Barnert, Michael Msika, Alexandra Semenova and Jessica Menton.

©2024 Bloomberg L.P.