(Bloomberg) — Wall Street hit a milestone, with the S&P 500 above 5,000 amid a renewed rally in major tech, hoping the Federal Reserve could cut rates soon — improving the outlook for corporate profits.
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Equities continued their fifth straight week of gains, driving ahead to close at another all-time high. Since its March 2020 pandemic-low, the US benchmark gauge has doubled, fueled by a soft landing and artificial intelligence euphoria. In fact, silver's advance was driven by technology, the index's most influential group — with the Nasdaq 100 up 1%.
“The S&P 500 is the best single barometer of corporate America earnings and confidence in the strength of the economy,” said George Paul, president of Saunders Morris. “The direction of the S&P 500 reflects whether the economy and earnings are improving or deteriorating.”
A few days ahead of the key consumer price index, investors heaved a sigh of relief after a government report – which is usually ignored by markets – confirmed an inflation pick-up at the end of 2023.
In the immediate aftermath of the data, Treasuries rose — but quickly reversed that move. Two-year yields have returned to levels prior to the central bank's December “pivot.” Atlanta Fed President Rafael Bostick said he was “laser focused” on getting inflation back to target, and his Dallas counterpart Lori Logan said there was no rush to cut rates.
For David Donabedian at CIBC Private Wealth US, the current economic backdrop supports Wall Street's bullish momentum.
“The market is moving forward from believing that the central bank will be its savior, and the economy doesn't need a savior to support it,” noted Donabedian.
With the S&P 500's new 5,000-point milestone, the question is: What's next for the index?
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According to Adam Turnquist at LPL Financial, performance is positive for scale after achieving key milestones. Over the past nine, the index posted a 12-month average return of 10.4% — with 78% of events yielding positive results, he noted.
“A close above this closely watched level will undoubtedly generate headlines and feed fears of a loss of sentiment,” noted Turnquist. “Outside of a potential emotional boost, round numbers like 5,000 often provide a psychological piece of support or resistance for the market.”
That's “a big round number,” according to Matt Maley at Miller Tabak + Co.
“Certainly, if the market rolls off this level in any meaningful way, that will change things,” he noted. “A break at that level would make it a new major resistance level. Anyway, the stock market has seen an amazing rally this year. So unless any decline turns out to be substantial, it won't be complete for the big picture.”
“While some might say it's just another number in the vast sea of numbers we digest every day,” says Kenny Bolgari at Slatestone Wealth, “5,000 represents a new millennium, so that creates extra excitement.” So I expect the excitement to continue for a little while longer.
Another reason for the stock market's sustained strength to start the year is of course the outlook for corporate profits.
With earnings season two-thirds over, companies are solidly beating expectations. According to Bloomberg Intelligence data as of Friday morning, 80% of S&P 500 companies reported results this earnings cycle, beating the 10-year average of 74%.
Analysts are responding by raising forecasts. Wall Street now sees fourth-quarter earnings growing an average of 6.5% for S&P 500 members — the best since mid-2022 — and up from a much lower forecast of 1.2% in early January, according to BI.
“The fourth-quarter earnings season was stronger than expected, giving investors confidence that a healthy economy can continue to drive corporate profits,” said B. said Arthur Hogan at Riley Wealth.
For Mark Hackett nationally, the strong momentum has brought skeptical institutional and retail investors back into the market – which has had a compounding effect on the rally – although it increasingly drives questions about sustainability.
Indeed, despite all optimism, warnings about an extended market continue to pile up — with the S&P 500 trading above “overbought” technical levels.
“We're cautious,” said Dan Wandropski at Johnny Montgomery Scott. “On this front, we're seeing a reduction in width, ongoing divergence in speed, overbought conditions in the leadership areas and a sense of approaching the top relatively quickly.”
With US stocks now trading at 21 times forward earnings amid little demand for cheap hedges on the back of higher interest rates and lower volatility levels, bulls and bears are wrestling over the sustainability of the rally, says Jose Torres at Interactive Brokers.
“Are we entering a new era of higher valuations due to increased productivity, increased retail participation and money shifting from East to West?” Torres said. “Or is it a 'publicity frenzy' that will end in tears as wild speculation takes over the markets? Ultimately, only time will tell, but my instincts put me in the bearish camp.”
Michael Hartnett at Bank of America Corp. says the fast rally that sent U.S. stocks to record highs is now close to triggering several sell signals.
The bank's custom bull and bear index rose to 6.8 in the week to Feb. 7, Hartnett wrote in a note. A reading above 8 would indicate that the bullish trend has run too far, flashing a contrarian signal to sell, the strategist said.
“Bear positioning in 2023 was the markets' best friend,” Hartnett said. But after investors bought the S&P 500 during last year's 24% rally, that exposure “turns upside down from a tailwind.” “In bubbles, markets show little respect for positioning” or valuation, he warned. “They only value policy and real interest rates,” he said.
The stock market's strength despite the shift in Fed expectations and higher interest rates is notable given the sharp reactions to the Fed in recent years, Nationwide's Hackett said.
“A less emotional market is a positive sign, although investors should fight against the complacency that is a natural reaction to such a strong and sustained bull run,” he added.
For Brett Kenwell at eToro, even though stocks are a little hot at the moment, that doesn't mean the markets are going to go off the rails.
“While this may lead to some short-term profit-taking, this is still a bull market. Until we see material weakness in the economy, it will be difficult to short stocks,” Kenwell noted.
Cryptocurrency stocks rose as Bitcoin advanced above $47,000.
The chief executive officer and other insiders bought more than 200,000 shares of the stock of New York Community Bancorp, which has lost half its value after last week's shock announcement of a dividend cut and large loan-loss provisions.
Cisco Systems Inc., the largest maker of computer networking equipment, is cutting thousands of jobs as it restructures its business to focus on high-growth areas, Reuters reported.
Expedia Group Inc. named Ariane Gorin as CEO of the online travel company, succeeding Peter Kern, who will be in the role through 2020.
Separately, Expedia reported $21.7 billion in gross bookings in the fourth quarter, missing analysts' average estimate of $22 billion.
PepsiCo Inc. It issued a full-year sales forecast that fell short of analysts' estimates and reported declines in volumes in its North America beverages and Quaker Foods units.
Exxon Mobil Corp. off the coast of Guyana. 's exploration drilling will be “south” of disputed territory that Venezuela claims as its own, a senior company executive said.
Some key movements in the markets:
The S&P 500 was up 0.6% as of 4 p.m. New York time
The Nasdaq 100 rose 1%
The Dow Jones industrial average fell 0.1%
The MSCI world index rose 0.4%
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0787
The British pound was up 0.1% at $1.2630
The Japanese yen was little changed at 149.29 per dollar
Bitcoin rose 5% to $47,581.03
Ether rose 2.8% to $2,492.76
The yield on 10-year Treasuries rose two basis points to 4.18%.
Germany's 10-year yield rose three basis points to 2.38%
Britain's 10-year yield rose four basis points to 4.09%
West Texas Intermediate crude was up 0.4% at $76.55 a barrel.
Spot gold was down 0.4% at $2,025.38 an ounce
This story was produced with the help of Bloomberg Automation.
–With assistance from Denitsa Sekova, Alexandra Semenova, Julian Pontus, Carmen Reinicke, and Carly Vanna.
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