S&P 500 Closes on the Brink of Historic 5,000 Mark: Markets Wrap

(Bloomberg) — The historic rally in US stocks continued to power ahead, with the S&P 500 closing within a striking distance of 5,000. 

Gains on Wednesday were fueled by a renewed surge in big tech and a strong sale of 10-year Treasuries that dimmed supply concerns. While bonds barely budged, equities extended their bull run on prospects that a solid economy will continue fueling corporate profits. In late trading, Walt Disney Co. and Arm Holdings Plc jumped on upbeat outlooks.

Traders shrugged off concerns about lofty valuations, February’s weak seasonality and cautious commentary from Federal Reserve officials — with stocks hitting fresh records. That positive tone in equities continued to prevail after the US government sold a record $42 billion of 10-year Treasuries at a lower-than-anticipated yield.

“The market continues to climb the wall of worry, including shifting Fed expectations, geopolitical tension, and overbought market conditions,” said Mark Hackett at Nationwide. “We are entering a sluggish seasonal period, but the market has strong momentum.”

February has the reputation of being a “digestion month” for the S&P 500, according to Sam Stovall at CFRA. However, when both January and February registered gains, the gauge saw a positive full-year total return 100% of the time, rising an average of 24%.

“Even though past performance is no guarantee of future results, this, along with other early-year indicators — such as posting all-time highs in January and February — point to an overwhelming probability of a good year following a great one,” Stovall said. “Brace for heightened volatility, however.”

Defying concerns about narrow market breadth, the “Magnificent Seven” technology companies — Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp., Nvidia Corp. and Tesla Inc. — continued to power gains this month.

Bets on a soft landing pushed US stocks to their first record in two years in January — marking a crucial milestone in the equity-market resurgence.

“Our base case is still for a soft landing where growth slows throughout the year, but remains healthy overall, while inflation does not prove to be overly sticky,” said Solita Marcelli at UBS Global Wealth Management. “And we do believe this environment will allow the Federal Reserve to start cutting rates by May, and by 100 basis points through year-end.”

Following the steps of all major US equity benchmarks, the MSCI World Index of developed-market shares also rose to a record.

Resilient economic growth in the US and an expected rebound in Europe are likely to support equities — even as some parts of the stock market look “frothy,” according to Barclays strategists led by Emmanuel Cau.

While one of the world’s largest exchange-traded funds sits at a crucial inflection point following a torrid rally since late October, further gains may be in store in the coming weeks. The Invesco QQQ Trust Series 1 (QQQ), which that tracks the Nasdaq 100, is trading near key resistance levels from three years ago relative to the broader SPDR S&P 500 ETF, better known by its ticker SPY. 

If resistance from February 2021 is decisively pierced, the QQQ/SPY ratio is poised to rally more from here, with bullish confirmation for QQQ on absolute basis climbing to a new high, according to Anthony Feld at Bloomberg Intelligence.

Also on Wall Street’s radar on Wednesday was a raft of central bank speakers — all showing no rush to cut rates as already signaled by Fed Chair Jerome Powell.

Governor Adriana Kugler presented an optimistic case for a continued slowdown inflation while indicating little urgency to reduce borrowing costs. Fed Bank of Boston President Susan Collins said she’s looking for more evidence that inflation is durably set to align with the target before moving to cut rates — though that step is likely “later this year.” Her Minneapolis counterpart Neel Kashkari told CNBC that said officials need to see “a few more months” of inflation data before easing policy.

At $42 billion, the 10-year Treasury sale eclipsed the $41 billion high-water mark reached in November 2020. With the latest changes to Treasury auction sizes announced last week, three of its seven notes and bonds, including the two- and five-year, are scheduled to hit record sizes in the February-to-April quarter.

The sale was one of three big tests for the market this week. Tuesday’s $54 billion auction of three-year notes also drew a lower yield than the one that had been predicted by trading at the bidding deadline, a positive sign. The US Treasury will complete its quarterly debt refunding Thursday with the sale of $25 billion of 30-year bonds.

Corporate Highlights:

• PayPal Holdings Inc. said it expects earnings to be flat this year as the financial-technology company continues to work on cutting costs and the streamlining of its businesses.
• Ford Motor Co., buffeted by electric vehicle losses and rising labor costs, posted fourth quarter results that soundly beat expectations and forecast higher profits in 2024.
• Roblox Corp., a gaming company, reported higher-than-ever revenue and player counts.
• Snap Inc., the parent company of the Snapchat app, reported lower-than-projected revenue over the peak holiday season, disappointing investors just a week after much-larger rival Meta Platforms Inc. posted its best sales growth in two years.
• Alibaba Group Holding Ltd. green-lit another $25 billion in stock repurchases, aiming to assuage investors worried about plateauing growth at a Chinese e-commerce and cloud pioneer struggling to fend off new rivals such as PDD Holdings Inc.
• Uber Technologies Inc. reported gross bookings that beat analyst estimates, showing strong global demand for rides and food delivery during the holiday period.

Key events this week:

• China PPI, CPI, Thursday
• US wholesale inventories, initial jobless claims, Thursday
• Treasury Secretary Janet Yellen speaks at a Senate banking committee hearing on the Financial Stability Oversight Council annual report, Thursday
• Pharma CEOs speak at a Senate panel on prescription drug prices, Thursday
• ECB Chief Economist Philip Lane speaks, Thursday
• ECB publishes economic bulletin, Thursday
• US CPI revisions, Friday
• Germany CPI, Friday
• President Joe Biden hosts German Chancellor Olaf Scholz at the White House, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.8% as of 4 p.m. New York time
• The Nasdaq 100 rose 1%
• The Dow Jones Industrial Average rose 0.4%
• The MSCI World index rose 0.6%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.2% to $1.0773
• The British pound rose 0.2% to $1.2625
• The Japanese yen fell 0.2% to 148.18 per dollar

Cryptocurrencies

• Bitcoin rose 2.3% to $44,161.79
• Ether rose 2.4% to $2,437.57

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.12%
• Germany’s 10-year yield advanced two basis points to 2.32%
• Britain’s 10-year yield advanced four basis points to 3.99%

Commodities

• West Texas Intermediate crude rose 1.1% to $74.13 a barrel
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Jessica Menton, Elizabeth Stanton and Michael Mackenzie.

©2024 Bloomberg L.P.