S&P 500 Near Historic 5,000 Mark As Tech Rallies: Markets Wrap

(Bloomberg) -- A rally in tech megacaps led stocks higher, with the S&P 500 approaching its 5,000 milestone. Bonds drifted before a record $42 billion sale of 10-year Treasuries.

Equities extended a torrid surge from their October 2022 lows on prospects that a solid economy will continue fueling corporate earnings. Traders shrugged off concerns about lofty valuations, February’s weak seasonality and cautious commentary from Federal Reserve officials to push stocks to all-time highs. Not even another plunge in New York Community Bancorp — which has unsettled investors over the past week — was able to deter equity bulls. 

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

“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.”

And that momentum could drag into the afternoon New York trading should the bond market see another strong government auction. Also on Wall Street’s radar is a raft of central bank speakers. Fed Governor Adriana Kugler presented an optimistic case for a continued slowdown in US inflation while indicating there is little urgency to reduce rates soon. Fed Bank of Minneapolis President Neel Kashkari told CNBC that said officials need to see “a few more months” of inflation data before easing policy.

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

Volatility due to the timing and pace of prospective rate cuts is more problematic for bonds, as stocks are supported by resilient earnings and cheaper valuations, excluding the US and tech, they wrote.

While one of the world’s largest exchange-traded funds sits at a crucial inflection point following a torrid 22% rally since late October, further gains may be in store in the coming weeks and months even as it teeters near crucial technical thresholds.

The $244 billion Invesco QQQ Trust Series 1 (QQQ), which that tracks the Nasdaq 100 Index, 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.

Wednesday’s 10-year Treasury auction will be the biggest ever — eclipsing 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.

“When combined with the fact that 10-year yields remain above 4% even as monetary policymakers have confirmed that the Fed will be cutting rates later this year, there is a clear path toward a solid auction reception,” said Ian Lyngen and Vail Hartman at BMO Capital Markets. “Of course, whether the auction tails or stops-through will most likely be a function of the supply setup as much as any tactical auction strategy.”

“All things considered, we’re biased for a tail on the combination of larger supply and the fact the FOMC doesn’t appear to be in any rush to begin lowering policy rates as there remains a high level of uncertainty around the inflation outlook,” they also noted.

Corporate Highlights:

• 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.
• 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.
• Chipotle Mexican Grill Inc.’s fourth-quarter sales and profit beat expectations as both transactions and check sizes rose, defying fears of waning consumer sentiment.

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 0.7% as of 11:14 a.m. New York time
• The Nasdaq 100 rose 1%
• The Dow Jones Industrial Average rose 0.4%
• The Stoxx Europe 600 fell 0.3%
• The MSCI World index rose 0.5%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0765
• The British pound rose 0.3% to $1.2631
• The Japanese yen was little changed at 147.91 per dollar

Cryptocurrencies

• Bitcoin was little changed at $43,123.42
• Ether fell 0.1% to $2,377.28

Bonds

• The yield on 10-year Treasuries declined one basis point to 4.09%
• Germany’s 10-year yield was little changed at 2.29%
• Britain’s 10-year yield advanced one basis point to 3.96%

Commodities

• West Texas Intermediate crude rose 0.7% to $73.79 a barrel
• Spot gold rose 0.2% to $2,040.90 an ounce

This story was produced with the assistance of Bloomberg Automation.

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

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