Bonds sank despite a good $25 billion auction, which alleviated concerns about an overstock. Equities finished little changed after the S&P 500 momentarily exceeded 5,000 for the first time. Investors were cautious as they prepared for Friday’s consumer-price index adjustments, recalling what occurred a year ago: the update was substantial enough to throw doubt on overall inflation growth.
“There is some talk that tomorrow’s CPI revisions could throw cold water on the recent good inflation numbers—but this is a wonky number,” said Andrew Brenner of NatAlliance Securities. “We think the next move comes off the CPI number next Tuesday.”
Ahead of those statistics, investors received a jobless claims reading, which contributed to indications of a still healthy labour market and supported central bank speakers’ recent cautious talk. Thomas Barkin, President of the Federal Reserve Bank of Richmond, was the latest to emphasise that policymakers had time to be patient about when to decrease interest rates.
The S&P 500 finished at 4,997.91. As earnings season began, Walt Disney Co. and Arm Holdings Plc rose on positive outlooks, while PayPal Holdings Inc. fell on a disappointing estimate. Treasury 10-year rates increased three basis points to 4.15%. Bitcoin surpassed $45,000. Oil prices rose on concerns about a likely cease-fire in the Israel-Hamas conflict.
According to Larry Tentarelli of Blue Chip Daily Trend Report, a strong labour market and a robust consumer continue to be positive for the economy and should alleviate immediate recession fears. According to Chris Larkin of Morgan Stanley’s E*Trade, the next several inflation data may determine if equities can continue to break new milestones in the short future.
“We remain cautious,” stated Dan Wantrobski of Janney Montgomery Scott. “On this front, we note narrowing of breadth, ongoing divergences in momentum, overbought conditions in leadership areas, and sentiment that can approach extremes relatively quickly.”
The S&P 500 has more than quadrupled since its epidemic low in March 2020, with gains in the last year powered by wagers on a gentle economic landing and confidence about the impact of artificial intelligence on business profitability.
While US markets are already pricing in a lot of good news, UBS’s Chief Investment Office sees room for more gains in the case of a “Goldilocks” economic scenario.
“Our base case remains for a soft landing for the US economy, with the S&P 500 ending the year around current levels,” said Solita Marcelli of UBS Global Wealth Management. “However, recent economic indicators have underlined the prospect for sustained greater growth, low inflation, and faster monetary easing. In this scenario, we believe that the S&P 500
The Conference Board reports that an indicator of mood among CEOs of US corporations has turned positive for the first time in two years.
Stronger-than-expected profits are prompting firms to propose share buybacks at a rapid pace as 2024 begins, potentially providing a critical pillar of support for equities that are already trading at record highs.
US firms reported $105 billion in planned share repurchases in the first seven days of February, surpassing the full-month total in January. According to data gathered by Birinyi Associates Inc., this is the greatest start to a February ever and the second-best start to a year after 2023.
Meanwhile, a survey done by 22V Research found that 56% of investors asked believe economic growth would exceed consensus predictions in 2024. That’s an increase from 35% two weeks ago. The probability of a recession has fallen to 7%. The count also revealed that technology is the “most-popular long” for the remainder of 2024.
Stocks have typically rallied following the first Fed rate decrease, but the stage of the economic cycle matters, according to Ed Clissold of Ned Davis Research. The best result came during soft landings, while the worst came when the economy entered a recession less than a year following the initial cut.
“Growth has outperformed value after first cuts—especially during slow cycles,” Clissold noted in a letter titled
Big tech — the group that has fueled the equities rebound — is bringing in more cash than ever before, putting the group in position to repay money to shareholders and perhaps adding gasoline to a rally that has already pushed most of the group to new highs.
According to data compiled by Bloomberg, the five largest technology companies that have reported earnings thus far — Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc., and Meta Platforms Inc. — generated a record $139.5 billion in combined cash from operations in the quarter that ended on December 31.
At current levels, the equities market seems overbought, but many traders do not want to lose out on further gains. This has sparked a surge of interest in options contracts that offer upside exposure for a low price.
According to Susquehanna International Group, the premium in implied volatility between 3-month 10-delta calls and 40-delta calls is at its biggest in a decade. This link indicates increased demand for call options, predicting bigger gains compared to those seeking more moderate increases.