S&P 500 Notches Biggest Rally Since November 2022

(Bloomberg) -- Stocks staged a solid rebound and bonds retreated after the latest US labor-market reading helped ease concern about a more pronounced slowdown in the world’s largest economy.

All major groups in the S&P 500 advanced, with the gauge notching its biggest rally since November 2022 as data showed US initial jobless claims tumbled the most in nearly a year. As economic angst subsided, Treasuries dropped across the curve — with the selloff led by shorter maturities. Bonds held their losses after a weak $25 billion sale of 30-year government debt.

Markets have been in a tailspin since last week’s economic data spurred concerns the Fed is waiting too long to cut rates, jeopardizing prospects for a “soft landing.” Those jitters combined with stretched positioning, underwhelming technology earnings and poor seasonal trends were among the factors triggering volatility.

“Some good news with jobless claims,” said Chris Zaccarelli at Independent Advisor Alliance. “We are exercising caution, but think that the panic that started earlier in the month was overblown.”

At Interactive Brokers, Steve Sosnick says he has an important question for the buyers: “Are you the same people who were clamoring for an emergency 50 basis-point rate cut on Monday?”

“Can we say that today’s number has quelled the looming recession fears? Absolutely not,” he added. “Can we say that stock traders remain fixated on buying dips and chasing rallies? Absolutely yes. Does the latter indicate that we desperately need rate cuts to keep markets afloat? C’mon, quit your whining.”

The S&P 500 rose 2.3%. The Nasdaq 100 climbed 3.1%. The Russell 2000 of smaller firms added 2.4%. Nvidia Corp. led gains in megacaps. Eli Lilly & Co. soared on a bullish outlook driven by sales of its weight-loss drugs.

Treasury 10-year yields rose four basis points to 3.99%. Swap traders further trimmed bets on aggressive Federal Reserve easing in 2024. Cryptocurrencies surged, with investors returning to riskier assets across financial markets.

“It has been quite a week,” said Liz Young Thomas at SoFi. “Up, down, and all around. We learned how sensitive markets now are to cooler US economic data, how broad reaching the impact of the yen carry trade can be, and how conditioned investors are to expect rate cuts as the salve for every scrape.”

That said, Thomas believes there is more volatility to come, and cooler economic and earnings data that will need to be digested for the remainder of the year. 

“Volatility can be unsettling, but it can also be an opportunity to revisit your allocations and do a gut check on what level of risk you’re comfortable with, given the wide variety of possible outcomes,” she concluded.

To Neil Dutta at Renaissance Macro Research, the issue right now is whether the Fed should be easing soon or not — and whether a large upfront move is likely or not.

“We are rallying today because of jobless claims!” Dutta said. “That’s unusual. If you get some downside surprises in the data next week, guess what happens? It will just fuel chatter back into the notion that the Fed is a bit behind the curve.”

While the recent stock-market rout flushed out some froth, US stocks remain at risk of more severe declines if growth continues to decelerate and the Fed “does not show urgency” in easing monetary policy, according to Dubravko Lakos-Bujas at JPMorgan Chase & Co.

Equities are no longer a “one-way upside trade, instead increasingly a two-sided debate on growth downside risks, Fed timing, crowded positioning, rich valuation, and rising election and geopolitical uncertainties,” Lakos-Bujas said.

As traders rattled by this week’s equities cascade ponder what lies ahead, UBS Group AG’s Solita Marcelli remains confident US stocks will continue their upward trajectory in the coming months.

The chief investment officer of the bank’s wealth management arm said recent market gyrations haven’t dented her fundamental view on stocks for 2024. The Fed’s first rate cut lies ahead and in times of a solid growth backdrop, the S&P 500 has risen roughly 17% on average over the next 12 months after the US central bank starts easing, she noted.

Corporate Highlights:

• Paramount Global, the parent of Nickelodeon, MTV and other channels, took a second-quarter impairment charge of $5.98 billion on its cable networks, in yet another sign of weakness in the traditional TV industry.
• Delta Air Lines Inc. expects $380 million in lost revenue this quarter from the CrowdStrike Holdings Inc. technology outage that forced the carrier to cancel thousands of flights last month.
• Apple Inc. is planning a new version of the Mac mini that will be its smallest desktop computer yet, part of a broader overhaul of the Mac line with AI-focused chips.
• Eli Lilly & Co. is narrowing the gap with rival Novo Nordisk A/S in the race to dominate the red-hot obesity market as it expands its supplies of weight-loss drugs.
• Under Armour Inc. reported results that exceeded analysts’ expectations and raised its guidance as the athletic-wear brand shows signs of improvement under returning founder Kevin Plank.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 2.3% as of 4 p.m. New York time
• The Nasdaq 100 rose 3.1%
• The Dow Jones Industrial Average rose 1.8%
• The MSCI World Index rose 1.7%
• Bloomberg Magnificent 7 Total Return Index rose 3%
• The Russell 2000 Index rose 2.4%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro was little changed at $1.0917
• The British pound rose 0.4% to $1.2745
• The Japanese yen fell 0.3% to 147.15 per dollar

Cryptocurrencies

• Bitcoin rose 7.8% to $59,441.88
• Ether rose 9.6% to $2,576

Bonds

• The yield on 10-year Treasuries advanced four basis points to 3.99%
• Germany’s 10-year yield was little changed at 2.27%
• Britain’s 10-year yield advanced three basis points to 3.98%

Commodities

• West Texas Intermediate crude rose 1.1% to $76.09 a barrel
• Spot gold rose 1.7% to $2,423.75 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Cristin Flanagan, Robert Brand, John Viljoen, Julien Ponthus, Allegra Catelli, Divya Patil and Richard Henderson.

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