(Bloomberg) — The unstoppable rally in stocks took a breather Monday as traders await this week's jobs data and remarks from Federal Reserve officials for clues on the interest rate outlook.
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After the S&P 500 hit its 15th record this year, stock prices fluctuated. While the market has defied concerns about a top, warnings of a consolidation or decline have emerged. Treasury bonds fell, and underwriters this week called for the sale of about $30 billion in new high-quality bonds.
Fed Chairman Jerome Powell is expected to reiterate his message that there is no rush to cut interest rates in his speech on Wednesday and Thursday. Meanwhile, data is likely to point to a slowdown in the labor market, adding to bets on policy easing as early as June.
“If the S&P 500 is to hit an all-time high for an eighth straight session, it will likely need to hear encouraging words from Powell on rate cuts in his two-day congressional testimony and avoid any major surprises in jobs data,” said Chris Larkin of Morgan's E*Trade Stanley.
The S&P 500 hovered near 5,130. Tesla Inc. fell 7%. Nvidia Corp. overtook Saudi Aramco to become the third most valuable listed company. Super Micro Computer Inc., which joins the U.S. stock benchmark this month, has risen more than 1,000% in the past 12 months. New York Community Bancorp fell after Friday's credit downgrades.
The 10-year U.S. Treasury yield rose four basis points to 4.22%. Bitcoin traded above $66,000. The price of gold exceeded the $2,100 mark.
The S&P 500 posted its 16th gain in the last 18 weeks – something not seen since 1971, according to Deutsche Bank AG. If the gauge reaches 17 out of 19 this week, it would be the first time since the 1960s, the company said.
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“We're seeing incredible levels being exceeded across a lot of different risk assets,” said Miller Tabak's Matt Maley. “Some of it is justified, but some of it is a sign of 'foam.' This means that risks on the stock market are increasing and investors must therefore not become too complacent.”
Marko Kolanovic of JPMorgan Chase & Co. also sees signs of increasing “froth” in the market.
“This could keep monetary policy at higher levels for longer, as an early rate cut risks driving up asset prices further or triggering a further rise in inflation,” he wrote.
For Chris Senyek of Wolfe Research, the U.S. stock market is likely to rise until economic data signals a significant slowdown or inflation appears stubborn enough to stop the Fed from cutting interest rates deeply and quickly.
“The market's incessant run-up, absorbing even the mostly mildly bullish news and ignoring all the bad news (known as the 'Teflon' market because nothing sticks), begs the question: Can anything cause the stock market to crash? said Tom Essaye, founder of The Sevens Report.
“The answer is of course 'yes'.”
Slower growth, lower interest rate cut expectations and falling profit expectations are some of the factors that could lead to this, he added.
Nouriel Roubini, the economist known for his pessimistic outlook before the 2008 global financial crisis, expressed optimism that U.S. growth will remain buoyant this year – although that could weigh negatively on stocks.
“There is actually a serious possibility of what people call a 'no-landing,' growth remaining above potential and inflation remaining stubborn,” Roubini told Bloomberg Surveillance. “Paradoxically, the good growth news could be bad news for the market if it means the Fed won't cut interest rates as much and as quickly as people expect.”
Raphael Bostic, president of the Fed Bank of Atlanta, said he expects the Fed's first rate cut – which he planned for the third quarter – to be followed by a pause at the following meeting to assess how the policy change is playing out impact the economy.
Powell is traveling to Capitol Hill for his semi-annual testimony before Congress, two years after the central bank began its aggressive fight against rising inflation. With the economy improving and inflation slowly approaching the Fed's sweet spot, Powell will explain why officials are in no rush to cut interest rates.
Fed officials' last quarterly forecast in December called for three-quarter percent cuts this year – and the bond market has picked up on that view, based on the prices of swap contracts tied to future Fed meeting dates.
“If Powell says something that says there will be rate cuts in the second half of the year, then that may result in two rate cuts being priced in,” said Steve Bartolini, portfolio manager at T. Rowe Price Group Inc.
Bets on interest rate cuts and the euphoria of artificial intelligence fueled a fourth straight month of gains for stocks – defying continued fears that the market has peaked after rising nearly 35% since the start of last year.
The gains have left strategists scrambling to raise their targets for the end of 2024.
Savita Subramanian of Bank of America Corp. was the latest to raise its target for the S&P 500 to one of the highest levels on Wall Street.
It now expects the year-end benchmark to be 5,400, compared to its previous target of 5,000. Indicators point to stronger future earnings growth and “surprising” profit margin resilience, she said.
The S&P 500's rise to a record high – driven by a small group of supercharged technology stocks – is not reminiscent of past bubbles, Goldman Sachs Group Inc. strategists say.
Stocks with enterprise value-to-sales ratios above 10 account for 24% of total U.S. stock market capitalization, up from 28% in 2021 and 35% during the tech bubble, strategist David Kostin wrote. However, the range of “extreme valuations” is far more limited, as the number of stocks trading at these metrics has declined significantly from the 2021 peak, he added.
“It’s different this time,” Kostin said. “In contrast to the broad-based 'growth at all costs' sentiment in 2021, investors are overwhelmingly paying high valuations for the largest growth stocks in the index. We believe Magnificent 7’s valuation is currently supported by its fundamentals.”
Company highlights:
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Apple Inc. was hit with a 1.8 billion-euro ($2 billion) fine by the European Union on Monday following an investigation into allegations the company targeted music-streaming competitors, including Spotify Technology SA, excluded from its platforms.
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American Airlines Group Inc. agreed to buy 260 short-haul planes, including a huge deal for Boeing Co. 737 Max jets, a key endorsement for the plane maker as it faces a crisis of confidence after a near-catastrophic accident in January.
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Coinbase Global Inc., the largest U.S. cryptocurrency exchange, said some retail investors had no funds in their accounts for the second time in less than a week.
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JetBlue Airways Corp. officially gave up its pursuit of Spirit Airlines Inc., more than a month after a federal judge blocked the $3.8 billion takeover on antitrust grounds.
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Arkhouse Management Co. and Brigade Capital Management increased their bid for Macy's Inc. by 14% after the retailer rejected an earlier offer.
Important events this week:
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Bank of Japan Governor Kazuo Ueda speaks on Tuesday
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China Caixin Services PMI, Tuesday
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China opens its 14th National People's Congress on Tuesday
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Eurozone S&P Global Services PMI, PPI, Tuesday
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US factory orders, ISM services, S&P Global Services PMI, Tuesday
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Super Tuesday in the US: North Carolina, California, Texas and Oklahoma are among more than a dozen states holding Republican and Democratic primaries
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Canada interest rate decision, Wednesday
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Eurozone retail sales, Wednesday
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US ADP Employment, JOLTS Vacancies, Wednesday
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Fed Chairman Jerome Powell testifies before the House Financial Services Committee on Wednesday
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The Fed issues a Beige Book on Wednesday
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The Fed's Neel Kashkari (Minneapolis) and Mary Daly (San Francisco) will speak on Wednesday
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China trade, foreign exchange reserves, Thursday
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European Central Bank interest rate decision, Thursday
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US initial jobless claims trading, Thursday
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President Joe Biden delivers the State of the Union address on Thursday
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Fed Chairman Jerome Powell testifies before the Senate Banking Committee on Thursday
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Cleveland Fed President Loretta Mester speaks Thursday
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Eurozone GDP, Friday
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US Non-Farm Payrolls, Unemployment, Friday
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New York Fed President John Williams speaks on Friday
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ECB Council member Robert Holzmann speaks on Friday
Some of the key moves in the markets:
Shares
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The S&P 500 was little changed at 2:09 p.m. New York time
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The Nasdaq 100 fell 0.2%
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The Dow Jones Industrial Average fell 0.3%
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The MSCI World Index has hardly changed
Currencies
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The Bloomberg Dollar Spot Index has barely changed
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The euro rose 0.2% to $1.0857
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The British pound rose 0.3% to $1.2691
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The Japanese yen fell 0.3% to 150.54 per dollar
Cryptocurrencies
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Bitcoin rose 6% to $66,620.02
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Ether rose 3.5% to $3,598.96
Tie up
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The 10-year Treasury yield rose four basis points to 4.22%
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The 10-year German government bond yield fell two basis points to 2.39%
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The yield on 10-year British government bonds has barely changed at 4.12%
raw materials
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West Texas Intermediate crude fell 1.6% to $78.66 a barrel
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Spot gold rose 1.5% to $2,114.32 an ounce
This story was produced with support from Bloomberg Automation.
– With assistance from Michael Mackenzie, Elizabeth Stanton and Esha Dey.
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