(Bloomberg) — Fresh gains in big tech stocks lift U.S. stock markets to a new milestone and strengthen the outlook for corporate earnings amid hopes the Federal Reserve will soon cut interest rates. .
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The S&P 500 topped 5,000, setting a new all-time high and heading for its fifth straight week of gains. The gauge has more than doubled since its pandemic-induced lows in March 2020, driven by bets on a soft landing and euphoria in artificial intelligence. In fact, Friday's gains were driven by technology, the gauge's most influential group, with the Nasdaq 100 up about 1% and Nvidia Inc. overtaking Amazon.com Inc. to become the fourth most valuable in the U.S. It threatens to become a high-priced company.
“The S&P 500 is the single best barometer of confidence in the profitability of American companies and the strength of the economy,” said George Ball, chairman of Sanders Morris. “The direction of the S&P 500 reflects whether the economy and earnings are improving or deteriorating.”
Days before the release of the main consumer price index, investors breathed a sigh of relief after a government report, usually ignored by markets, confirmed that inflation would develop at the end of 2023.
US Treasuries rose immediately after this data, but quickly reversed their move. Two-year Treasury yields have returned to levels not seen since before the Fed's December pivot. Atlanta Fed President Rafael Bostic said the Fed is “extremely focused” on getting inflation back on target, and Dallas President Laurie Logan said there was no urgency to cut rates.
According to David Donabedian of CIBC Private Wealth US, the current economic climate supports bullish momentum on Wall Street.
“The market has gone from believing that the Fed will be the savior to deciding that the economy is so supported that we don't need a savior,” Donabedian said.
With the S&P 500 index on the verge of passing the 5,000 point milestone and exiting, the question is: what's next for the index?
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LPL Financial's Adam Turnquist said the gauge has been performing well after reaching key milestones. Among the past nine stocks, the index had an average 12-month return of 10.4%, with positive results 78% of the time, he noted.
“A close above this closely monitored level would definitely make headlines and add to the fear of missing out on sentiment,” Turnquist said. “Besides a potential sentiment boost, round numbers such as 5,000 often provide areas of psychological support or resistance to the market.”
For now, that's “just a big ballpark number,” said Matt Maley of Miller Tabak + Co.
“Of course, if the market reverses in any meaningful way from these levels, things will change,” he said. “If we fail at that level, it will be the new major resistance level. In any case, the stock market has had a nice rally this year. So unless some decline becomes significant, it will be a total It wouldn’t mean much to the statue.”
“Some might say this is just another number in a sea of numbers that we digest every day, but this one is a little different,” said Kenny Porcari of Slatestone Wealth. said. “There's more excitement because 5,000 years represents a new millennium. So I think the excitement will continue for a little while longer.”
Another reason for the stock market's strong performance at the beginning of the year is certainly the outlook for corporate profits.
With earnings season about two-thirds over, companies are steadily beating expectations. About 80% of S&P 500 companies reporting earnings for the current period posted unexpected improvements, easily beating the 10-year average of 74%, according to Bloomberg Intelligence data through Friday morning.
Analysts are responding by raising their forecasts. Wall Street now expects S&P 500 index members' fourth-quarter earnings to rise 6.5% year-over-year on average, the highest since mid-2022 and up from 1.2% in early January, according to BI. This is said to be an increase from the meager forecast.
“Fourth quarter results were better than expected, giving investors confidence that a healthy economy can continue to boost corporate earnings,” said Arthur Hogan of B. Riley Wealth.
Still, despite this optimism, the S&P 500 remains trading above the overbought technical level, and warnings of market tightening continue to mount.
“We remain cautious,” said Dan Wantrowski of Janney Montgomery Scott. “On this front, we are watching for narrowing, continued momentum divergence, overbought conditions in the leadership space, and sentiment that could approach extremes relatively quickly.”
Jose Torres of Interactive Brokers says U.S. stocks are currently trading at a forward P/E ratio of 21 times, which is bullish as there is little demand for cheap hedges due to high interest rates and low volatility. Supporters and bears are said to be wrestling with the sustainability of this bull market.
“Are we entering a new era of high valuations due to increased productivity, increased retail participation, and money moving from East to West?” Torres said. “Or is this a ‘mania frenzy’ where wild speculation sweeps the market and tears are shed? Time will tell, but my instincts put me in the bearish camp. I’ll keep it.”
Bank of America's Michael Hartnett says the rapid rally that sent U.S. stocks to a record high is now close to triggering some sell signals.
The bank's proprietary bull and bear index rose to 6.8 in the week ending Feb. 7, Hartnett wrote in a note. According to the strategist, a reading above 8 suggests that the bullish trend has gone too far and is sending a contrarian signal to sell.
“2023 bear market positioning has been the market's best friend,” Hartnett said. But after investors bought the S&P 500 during last year's 24% rally, that exposure is “shifting from a tailwind to a headwind.” “In a bubble, the market has little respect for positioning or valuation,” he warned. “They only respect policy interest rates and real interest rates,” he said.
Shares may be a bit overheated at the moment, but that doesn't mean the market is about to go off track, tells eToro's Brett Kenwell.
“It may ultimately lead to short-term profit taking, but it's still a bull market. Until we see significant weakness in the economy, it's hard to be bearish on stocks,” Kenwell said. .
“Despite concerns about recent tightening of lending standards by banks, the U.S. economy still appears to be attempting a soft landing,” said Don Rissmiller of Strategas. He added that with inflation remaining subdued, “a Fed rate cut is likely in the second half of 2024.”
The market's implicit expectation that the Fed will cut rates this year continues, with a 1/15th of a percentage point cut in June priced in, and a total of four rate cuts this year. Next week, the consumer price index is expected to show further slowing in January, which Fed officials say is the condition for cutting rates after 11 hikes in the past two years.
Expectations that a large amount of new corporate bonds will be issued on Monday ahead of January's consumer price index (CPI) data were also a factor in the rise in US Treasury yields on Friday.
Evercore's Krishna Guha said the U.S. CPI revision “didn't come as an ugly surprise” and should further boost the Fed's confidence that inflation is sustainably returning to its 2% target, leading to a rate cut. He said it would be one more check on the road to achieving this goal.
Company highlights:
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Cryptocurrency stocks rose as Bitcoin rose above $47,000.
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New York Community Bancorp's chief executive officer and other insiders bought more than 200,000 shares, worth about It's now half.
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Cisco Systems, the largest maker of computer networking equipment, is cutting thousands of jobs as it restructures its business to focus on high-growth areas, Reuters reports.
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Expedia Group has appointed Ariane Gorin as chief executive officer of the online travel company, replacing Peter Kahn, who has held the role since 2020.
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Separately, Expedia reported fourth-quarter gross bookings of $21.7 billion, below analysts' average estimate of $22 billion.
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PepsiCo reported lower full-year sales than analysts expected, with lower volumes in its North American beverage and Quaker food divisions.
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Exxon Mobil's exploration drilling offshore Guyana will be “well south” of disputed territory that Venezuela claims as its own territory, a company executive said.
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Video game company Take-Two Interactive Software Inc.'s full-year net reservations forecast fell short of consensus expectations.
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Paramount Global CEO Bob Bakish expects this weekend's Super Bowl to set records for ad sales and viewership on CBS.
The main movements in the market are:
stock
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As of 2:41 p.m. New York time, the S&P 500 was up 0.6%.
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Nasdaq 100 rose 1.1%
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The Dow Jones Industrial Average is little changed.
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MSCI World Index rose 0.4%
currency
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Bloomberg Dollar Spot Index little changed
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The euro was almost unchanged at $1.0787.
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Sterling rose 0.1% to $1.2635.
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The Japanese yen remained almost unchanged at 149.33 yen to the dollar.
cryptocurrency
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Bitcoin rises 5.1% to $47,622.83
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Ether rose 2.7% to $2,490.92
bond
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The 10-year Treasury yield rose 3 basis points to 4.18%.
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Germany's 10-year bond yield rose 3 basis points to 2.38%.
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The UK 10-year bond yield rose 4 basis points to 4.09%.
merchandise
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West Texas Intermediate crude rose 0.6% to $76.70 a barrel.
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Spot gold fell 0.5% to $2,024.96 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Denitsa Tsekova, Alexandra Semenova, Julien Pontus, Carmen Reinicke, and Carly Wana.
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