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S&P 500 Is Now On Track For Biggest Run This Year: Markets Wrap

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Pedestrians walk past the Shanghai Stock Exchange building in Shanghai, China. Photographer: Qilai Shen/Bloomberg
Pedestrians walk past the Shanghai Stock Exchange building in Shanghai, China. Photographer: Qilai Shen/Bloomberg

Stocks headed toward their best three-day rally of 2024, extending a rebound fueled by expectations the Federal Reserve will be able to cut interest rates this year.

The S&P 500 topped its average price of the past 50 days — a level seen by many chartists as key in maintaining the positive momentum. A solid earnings season kept driving optimism, especially after a pullback that made some areas of the market attractive. While the below-average trading volume raised concern among some about the sustainability of the advance, most industries gained on Monday.

Stocks rise with eyes on Fedspeak.Photographer: Michael Nagle/Bloomberg
Stocks rise with eyes on Fedspeak.Photographer: Michael Nagle/Bloomberg

“Bulls will be looking to maintain their momentum after snatching last week from the jaws of bears,” said Chris Larkin at E*Trade from Morgan Stanley. “This week is light on high-profile economic data, but heavy on Fed members hitting the speaking circuit. Traders will be dissecting any comments they make about potential rate cuts.”

Equities were set for their best three-day rally since November. Tesla Inc. and Nvidia Corp. led gains in megacaps. Micron Technology Inc. climbed on an analyst upgrade. Apple Inc. fell, with Warren Buffett revealing he’d cut his stake even after heaping praise on the iPhone maker. A gauge of small caps climbed 1%.

Treasury 10-year yields were little changed at 4.50%. Auctions this week of a combined $67 billion of 10- and 30-year securities will test demand for longer-dated debt. The government will also sell $58 billion of three-year notes.

S&P 500 Is Now On Track For Biggest Run This Year: Markets Wrap

In a thin week of economic data, investors will be watching a slew of central-bank speakers and the Fed’s Senior Loan Officer Opinion Survey (SLOOS) on Monday. With higher funding costs recently hitting banks, expectations are that they have become more selective in terms of lending — which might have influenced Fed Chair Jerome Powell’s not-so-hawkish tone last week.

Investors are now cautiously upping their bets for policy easing this year, and yields on Fed-sensitive two-year notes are leading market gains. And yet, for all the signs of deceleration in some areas of the US economy, inflation remains sticky — a reality that may limit what the central bank can do and means bond yields are likely stuck in their recent ranges. 

“There are many Fed speakers this week,” said Win Thin and Elias Haddad at Brown Brothers Harriman & Co. “It remains to be seen whether most Fed officials are on board with Chair Powell or not. However, after last week’s dovish performance by Powell, there is really nothing that the hawks can say to erase that message. As always, it will come down to the data.”

The busy calendar of Treasury auctions this week will be the subject of much attention by investors after yields priced by the bond market moved lower on the April jobs, wages and unemployment numbers released last Friday, according to John Stoltzfus at Oppenheimer Asset Management.

“The question on many bond market participants’ minds these days tends to be how successful will the current Treasury auction be considering the dollar amounts to be raised by the government and the seemingly ever changing prospects that lie ahead for or against a Fed rate cut with sticky inflation remaining elusive to the Fed’s 2% inflation target,” he noted.

 Source: Bloomberg
 Source: Bloomberg

Stoltzfus added that better-than-expected S&P 500 earnings and the recent pullback in stock prices brought valuations of several key US benchmarks back to attractive levels.

Meantime, hedge funds are reversing their bearish stance on consumer stocks as the latest economic data and comments from the Fed revive bets on interest rate cuts.

After four weeks of selling, hedge funds last week piled into consumer discretionary stocks, which saw the largest net buying during the week ended May 3, according to data compiled by Goldman Sachs Group Inc.’s prime brokerage desk. The move was driven by long buys as well as the largest short covering since December 2023.

Adam Turnquist at LPL Financial says stock-market breadth remains robust. Nearly three-quarters of S&P 500 stocks remain above their 200-day moving averages — with cyclical sectors exhibiting the broadest participation.

“Momentum is also improving,” Turnquist noted. “Overall, based on a backdrop of bullish market breadth and improving momentum, a close above the 50-day moving average would be a good sign for the pullback being over.”

“Mixed” messages from key US economic data and the accompanying swings in stock markets mean investors should load up on defensive sectors such as consumer staples, according to Morgan Stanley strategists.

A soft landing or a so-called no landing, where growth is resilient even as rates stay high, both remain possible for the US economy, the team led by Michael Wilson wrote in a note. This uncertain backdrop warrants an investment approach that can work as market pricing and leadership between groups of stocks gets whipsawed by the potential outcomes.

In corporate earnings, Arm Holdings Plc and Palantir Technologies Inc. should show they continued to benefit from artificial intelligence demand when they report this week.  Airbnb Inc. may be among gig economy companies posting slower growth. Uber Technologies Inc. should be a bright spot as it expands its pool of drivers and merchants, drawing more active users.

Walt Disney Co., fresh off a victory in its proxy fight against activist investor Nelson Peltz, is set to impress as cost-cutting efforts take hold, the bet on streaming gets closer to paying off and its theme parks keep drawing visitors.

Corporate Highlights:

  • The US Securities and Exchange Commission warned Robinhood Markets Inc. that it faces an enforcement action over its crypto business — the latest sign that the regulator isn’t letting up on its years-long crackdown on digital assets.
  • Chip-design company Synopsys Inc. is selling its software integrity business to two private equity firms for as much as $2.1 billion in cash.
  • Tyson Foods Inc. raised its 2024 earnings outlook after posting second-quarter profits that beat analyst estimates amid a rebound in the US meat industry.
  • United States Steel Corp. was raised to overweight at Morgan Stanley, based on prospects for “transformational” investments.
  • Spirit Airlines Inc. gave revenue guidance for the second quarter that fell short of Wall Street’s expectations.
  • Victoria’s Secret & Co. was downgraded to underweight at Morgan Stanley, which sees the risk of a profit miss and a full-year outlook cut when the company reports first-quarter results.

Key events this week:

  • Australia rate decision, Tuesday
  • Eurozone retail sales, Tuesday
  • UBS earnings, Walt Disney, BP earnings, Tuesday
  • Minneapolis Fed President Neel Kashkari speaks, Tuesday
  • Toyota earnings, Wednesday
  • Germany industrial production, Wednesday
  • US wholesale inventories, Wednesday
  • Fed Governor Lisa Cook speaks, Wednesday
  • Bank of Japan issues summary of opinions from April policy meeting, Thursday
  • China trade, Thursday
  • UK BOE rate decision, Thursday
  • US initial jobless claims, Thursday
  • UK industrial production, GDP, Friday
  • ECB publishes account of April policy meeting, Friday
  • BOE Chief Economist Huw Pill speaks, Friday
  • US University of Michigan consumer sentiment, Friday
  • Chicago Fed President Austan Goolsbee speaks, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 rose 0.5% as of 11:31 a.m. New York time
  • The Nasdaq 100 rose 0.6%
  • The Dow Jones Industrial Average rose 0.1%
  • The Stoxx Europe 600 rose 0.5%
  • The MSCI World index rose 0.5%

Currencies

  • The Bloomberg Dollar Spot Index was little changed
  • The euro rose 0.1% to $1.0776
  • The British pound rose 0.2% to $1.2572
  • The Japanese yen fell 0.6% to 153.97 per dollar

Cryptocurrencies

  • Bitcoin fell 0.6% to $63,376.16
  • Ether fell 1.9% to $3,078.14

Bonds

  • The yield on 10-year Treasuries was little changed at 4.51%
  • Germany’s 10-year yield declined two basis points to 2.48%
  • Britain’s 10-year yield declined six basis points to 4.22%

Commodities

  • West Texas Intermediate crude rose 0.6% to $78.58 a barrel
  • Spot gold rose 0.9% to $2,322.42 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Natalia Kniazhevich.

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