US shares dropped following a record-breaking run that sent the S&P 500 up roughly 10% this year. The measure increased more than 2% in a week of nearly universal gains. The market’s resiliency has prompted experts to increase their objectives, while also sparking calls for consolidation or a pullback.
“With some sentiment and positioning indicators looking elevated, we would not be surprised to see a modest pullback in the coming months,” stated David Lefkowitz of UBS Global Wealth Management. “That could offer investors a better opportunity to add to equity positions.”
In the absence of economic data, traders focused on Fedspeak. Jerome Powell’s remarks at a “Fed Listens” event did not address monetary policy. Michael Barr, the Federal Reserve’s vice chair for supervision, stated that a plan to require lenders to retain additional capital will most certainly undergo major revisions.
The S&P 500 closed below 5,235. Nvidia Corp. extended its advances for the 11th straight week. FedEx Corp., an economic indicator, soared on strong results and a $5 billion repurchase programme. Nike Inc. and Lululemon Athletica Inc. fell on bleak forecasts.
Treasury 10-year rates fell six basis points, to 4.21%. This year, the dollar came close to reaching its peak.
While a relative air of calm persisted at the conclusion of the week, American stocks experienced significant withdrawals ahead of the highly anticipated Fed policy meeting.
According to a report from Bank of America Corp., using EPFR Global statistics, US equity funds had redemptions of around $22 billion in the week through Wednesday, the most since December 2022. The pattern also represented a significant reversal from the prior week, when equities saw record inflows.
Following the Fed decision, equities surged on the notion that the central bank was not as aggressive as previously thought. Policymakers maintained their prediction of three rate reduction this year, and Chair Powell did not appear particularly worried about the recent increase in inflation.
However, an examination of Fed rate cycles since the 1970s has found that, on general, investors are more concerned with the first rate decrease in a cycle than with a pause, according to Ryan Grabinski of Strategas Securities.
The S&P 500 is up more than 5% on average in the 100 days between the last Fed tightening and the first rate decrease, he added. However, the bottom in the broader market exceeds a 23% decline more than 200 days after the first rate decrease in a row.
Despite persistently high interest rates, recent housing, manufacturing, and labor-market indicators indicated a strong economy.
“Six months ago, investors were largely pessimistic, with ‘good news being treated as bad news’ and ‘bad news treated as bad news’,” said Mark Hackett, chief economist at Nationwide. “The pendulum has shifted almost completely, with strong data being viewed as a sign of a ‘soft landing’ — while sluggish data reinforces the belief that the Federal Reserve will cut rates.”
According to Hackett, this has generated significant market momentum. The technicals driving the current market advance were outstanding, with more than three-quarters of the S&P 500 above the 200-day moving average, the highest level since 2021, he added.
One of the few Wall Street analysts who accurately predicted last year’s stock market rise finds himself in a contrarian position once more. But this time, Brian Belski believes stocks are poised for a drop, while many of his peers are going positive.
A correction is on the way after equities rose too far, too quickly on mistaken confidence about when the Fed would cut interest rates, according to BMO Capital Markets’ chief investment strategist and long-term bull.
Bill Gross, the former bond king, has warned that investors are ready for a rocky ride as “excessive exuberance” sweeps global markets.
“It tells me that fiscal deficit spending and AI enthusiasm have been overriding factors, and momentum and ‘irrational’ exuberance have dominated markets since 2022,” Gross, Pacific Investment Management Co.’s co-founder and former chief investment officer, wrote in his most recent investment outlook. “Buckle up for excessive exuberance.”
Meanwhile, HSBC strategists were the latest on Wall Street to claim that shares are not in a bubble, despite a significant gain since last year. Max Kettner’s team lifts their opinion of US stocks to “tactically overweight” from “neutral.”
“Re-accelerating inflation is a risk, but the key here is when central banks and markets will really start to care,” they went on to say. “We’re still quite some way away from that.”
According to Goldman Sachs Group Inc. strategist Peter Oppenheimer, equity values outside of the United States are significantly more appealing following a recent surge in technology megacap stocks.
“We think technology is still going to be crucially important and do well, but as interest rates come down and we get this soft landing, the opportunity for broadening out into some more cyclical parts of the market is improving,” Oppenheimer was quoted as saying by Bloomberg.
“US equities remain in an uptrend, but we believe they are vulnerable to potential consolidation/correction ahead,” says Dan Wantrobski of Janney Montgomery Scott. “Momentum is pushing several areas (not just megacap leadership) into overbought/extended territory on a short-term basis — which is what continues to concern us from a technical perspective.”
Still, overall market breadth is expanding, he said, noting that the cumulative advance-decline line for New York Stock Exchange shares is on the verge of breaching new all-time highs.
“This is an important metric to watch because it indicates that the markets are no longer being carried by just a few names (like the Mag 7, for example), but are starting to fire on all cylinders across multiple market caps and sectors,” Wantrobski