The S&P 500 set a new high despite losses in its most significant sector: technology. A dip in retail sales helped calm investors’ concerns about overheated consumer demand, especially following the worries triggered by a high inflation report earlier this week. Bonds moved little, with Fed swaps completely pricing in a rate decrease in June. The dollar declined.
For months, investors have been grappling with competing economic narratives. Progress towards reduced inflation has moulded the perception that the Fed can reduce interest rates from multiyear highs without sending the US into a recession. At the same time, the economy has surpassed projections, providing the central bank a reason to postpone.
“The data is complicated—a true dichotomy,” said Gina Bolvin, head of Bolvin Wealth Management Group. “The market will be volatile as it digests the data and scrutinises every data point.”
The S&P 500 index rebounded to approximately 5,030, erasing this week’s losses. Banks and energy firms surged, while Tesla Inc. gained more than 6%. Applied Materials Inc. issued a positive revenue outlook late in the day. Treasury 10-year rates fell two basis points, to 4.23%.
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A stronger-than-expected US inflation reading earlier this week has not dampened the outlook for stocks, and any selloff is a buying opportunity ahead of a Fed turn, according to Citigroup analysts. Scott Chronert’s team maintained their S&P 500 year-end goal of 5,100.
They remain overweight technology and advocate increasing cyclical exposure through industrial and financial stocks.
According to Lisa Shalett of Morgan Stanley Wealth Management, a seemingly never-ending surge in US equities may continue as long as sufficient liquidity makes traders feel comfortable purchasing. However, she anticipates liquidity to run out later this year.
“As long as there’s excess liquidity in the system, we’re going to have the ability for investors to come in and think that they’re getting a bargain and participate in all asset classes when there’s some evidence of weakness,” Shalett said in an interview with Bloomberg Television.
For the first time since 2021, the amount of money parked by investors at a large Fed facility fell below $500 billion.
Market players have been attentively monitoring the rate at which the so-called RRP drains: Some Wall Street analysts argue that the draining facility demonstrates that excess liquidity has been withdrawn from the financial system, implying that bank reserve holdings aren’t as ample as policymakers claim.
A strong consumer price index earlier this week roiled financial markets, with traders revising their expectations on Fed rate cuts in 2024.
Next up comes Friday’s producer price index, which typically receives less attention from markets than the CPI but will be closely watched this time.
“Tomorrow’s PPI will be closely watched by markets and should drive the near-term direction for the equity and bond markets,” said Larry Tentarelli, Blue Chip Daily Trend Report’s chief technical strategist.
Strong demand for Treasury options strategies targeting 10-year rates exceeding 4.4% in the next weeks, a level last seen in November, is one indication that inflation concern remains high.
Aside from retail sales, a reading on manufacturing production indicated a lack of momentum — but not necessarily a substantial decline in the economy. In fact, Thursday’s statistics indicated that confidence among homebuilders reached a six-month high as jobless claims decreased.
“Today’s weak retail sales and middle-of-the-road jobless claims total may help soothe the market’s nerves in the near term,” said Chris Larkin of E*Trade from Morgan Stanley. “But there may still be an element of ‘altitude sickness’ at work, since the higher the market rallies, the more vulnerable it may be to setbacks when individual economic numbers don’t fit the rate-cutting narrative.”
Apple Inc., which is rushing to add more artificial intelligence capabilities, is approaching completion on a major new software tool for app developers that will increase rivalry with Microsoft Corp.
Alphabet Inc. plummeted on reports that ChatGPT owner OpenAI is launching a web search tool to compete with Google.
Microsoft Corp. will release four exclusive Xbox games for Nintendo Co.’s Switch and Sony Group Corp.’s PlayStation, sharing homegrown titles with competitors for the first time as the firm seeks to increase income in a stagnant gaming industry.
Digital World Acquisition Corp., the blank-check business seeking to take Donald Trump’s media company public, rocketed after gaining a long-awaited approval from the US Securities and Exchange Commission.
The Justice Department intends to investigate the new streaming service planned by Walt Disney Co., Fox Corp., and Warner Bros. Discovery Inc. because to fears that it may affect consumers, media rivals, and sports leagues.
Nvidia Corp., the chipmaker at the centre of an artificial intelligence spending boom, has announced investments in Arm Holdings Plc, SoundHound AI Inc., and biotech business Recursion Pharmaceuticals Inc.