Tech giants boost stocks as AI euphoria rages on: Market close

(Bloomberg) — A rally in mega-cap stocks led stocks to rally on speculation that the artificial intelligence boom will continue to drive market gains.

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Alphabet Inc. rose 5% a day after Google released Gemini, the “largest, most powerful AI model” the company has ever built. Advanced Micro Devices Inc. also rallied after promising that its new accelerator chips will run AI software faster than rival products. The Nasdaq 100 rose 1% and the S&P 500 halted a three-day decline, with traders also awaiting Friday's jobs report, which will be crucial to the Federal Reserve's interest rate cut bets.

“Regardless of when the first cut occurs, the pause is typically a favorable time for stocks,” said Jeff Schulze of ClearBridge Investments. “With no obvious risks in sight and the third quarter earnings season solid, the Santa Claus rally could continue.”

Government bond yields rose on speculation that bets on interest rate cuts by major central banks had gone too far, and hawkish signals from the Bank of Japan sent global bonds reeling. The BOJ indication sent the yen up 2% as global yields rose.

“Japan appears to be an outlier in tightening policy, while most other major central banks are moving toward easing as economic growth slows,” said Solita Marcelli of UBS Global Wealth Management. “This backdrop supports our preference for high quality bonds, although we expect the pace of the recent rally to moderate.”

After having one of its best months in decades, the bond market was showing signs of exhaustion. Rates strategists at TD Securities recommended profit-taking on long positions in the 10-year Treasury note ahead of November's jobs report – leaving yields “at risk of a sharp rise.”

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“Both valuation and positioning would suggest exhaustion in the recent bond rally,” said Mohit Kumar of Jefferies International. “Given our view that there will only be a mild recession and inflation remains stable, we would argue that the market is getting a little ahead of itself.”

In a week of jobs data, data showed ongoing U.S. jobless claims fell by the most in a holiday week since July, after rising over the past two months. Despite the decline, continued claims are still near a two-year high as signs of a slowdown in the labor market grow.

Expectations of interest rate easing played a big role in November's stock rally, but a look at the volatility across different assets shows that the risks are not as muted as they seem. The gap between the MOVE index, which tracks interest rate volatility, and the VIX measure of stock price fluctuations has widened again, suggesting that interest rate markets remain choppy and could trigger stress for stocks at any time.

According to Goldman Sachs strategists such as Ryan Hammond and David Kostin, US stocks already reflect an optimistic outlook for economic growth, making them “vulnerable” to macroeconomic shocks.

“We believe that much of the optimistic scenario is already reflected in US stock prices today,” they wrote.

The quant strategists at Bank of America Corp. say that after the big tech-driven rally in 2023, the S&P 500 has the potential to rise next year – even without their support. Concerns about narrow market breadth are “misplaced” because bull markets over the past four decades – outside of the dot-com bubble – have always ended with far greater breadth, they noted.

“Unlike this year, where the 'Magnificent 7' did 70% of the work, we expect broader leadership,” Savita Subramanian said, pointing to contributions to the rally from companies like Apple, Nvidia and Microsoft.

Company highlights:

• JetBlue Airways Corp. raised its full-year financial outlook, citing better-than-expected bookings and operating performance this fall. Its shares rose double digits in early trading.

• Dollar General Corp. reported comparable sales that were above the average analyst estimate, a sign that Chief Executive Officer Todd Vasos is beginning to have some success in improving results after taking the helm for a second time in October.

• GameStop Corp., the video game retailer, reported sales that fell short of analysts' estimates.

• Elon Musk's SpaceX has initiated discussions about selling insider shares at a price that values ​​the closely held company at $175 billion or more, according to people familiar with the matter.

Important events this week:

• Germany CPI, Friday

• Japanese household spending, GDP, Friday

• Andrea Brischetto, head of financial stability at the Reserve Bank of Australia, speaks at the Sydney Banking and Financial Stability conference on Friday

• U.S. jobs report, University of Michigan consumer sentiment, Friday

Some of the key moves in the markets:

Shares

• The S&P 500 rose 0.7% as of 10:35 a.m. New York time

• The Nasdaq 100 rose 1.1%

• The Dow Jones Industrial Average rose 0.1%

• The Stoxx Europe 600 fell 0.3%

• The MSCI World Index rose 0.4%

Currencies

• The Bloomberg Dollar Spot Index fell 0.3%

• The euro rose 0.2% to $1.0784

• The British pound rose 0.1% to $1.2573

• The Japanese yen rose 2.1% to 144.24 per dollar

Cryptocurrencies

• Bitcoin was little changed at $43,818.01

• Ether rose 3% to $2,314.85

Tie up

• The 10-year Treasury yield rose four basis points to 4.15%

• The yield on 10-year German government bonds has hardly changed at 2.20%.

• The 10-year UK government bond yield rose four basis points to 3.98%

raw materials

• West Texas Intermediate crude rose 0.8% to $69.95 a barrel

• Spot gold rose 0.2% to $2,029.40 an ounce

This story was produced with support from Bloomberg Automation.

– With support from Jan-Patrick Barnert, Michael Msika, Ian King and Subrat Patnaik.

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