A renewed round of risk-taking propelled the S&P 500 to its 20th record this year, aided by advances in industrials and banks. Not even losses in two megacaps — Apple Inc. and Alphabet Inc. — slowed market momentum. The Nasdaq 100 also reached an all-time high, boosted by Micron Technology Inc.’s forecast. Reddit Inc. skyrocketed on its launch.
The most recent wave of housing, manufacturing, and labor-market statistics showed a strong economy, which should worry policymakers seeking to keep inflation back on track. A day after the Fed signalled that rates will be reduced this year, traders chose to keep looking at the bright side of things.
“For now, the soft-landing thesis is intact, with leading indicators showing nascent signs of trending more positively,” said Jim Baird of Plante Moran Financial Advisers.
The S&P 500 surpassed 5,240. Small caps extended the week’s gains. Treasury 10-year rates were slightly changed, at 4.27%.
Across the Atlantic, the British pound plummeted as two Bank of England hawks withdrew their call for rises. A surprising move by the Swiss National Bank to slash interest rates also pushed the Swiss currency down.
According to Max Kettner of HSBC, it is hardly unexpected that risk assets are still on a tear.
“The rate-hike cycle of 2022 and 2023 has done little to impact the broader US economy negatively,” he said.
As for the Fed’s future trajectory, he argues it’s a binary choice.
“Either they cut or they don’t,” he stated. With Fed Chair Jerome Powell making it apparent that the next move would be downward, “it appears more a question of ‘when’ rather than ‘if.'” “That appears to be adequate for risk assets.”
Looking at prior periods when the Fed was on hold, Ryan Grabinski of Strategas Securities found that the present halt ranked second in terms of duration until March 20.
“The good news is that the longer they hold, the more the market has historically moved higher,” he said.
Grabinski added that when the pause lasts more than 100 days, the market rises by an average of 13%. The highest performance came during the 2006-2007 hiatus, which was also the longest and saw the S&P 500 rise 22%.
Just three months into the year, the equities rise has prompted experts to raise their S&P 500 end-of-year estimates for 2024. The indicator is already trading higher than the average expectation of strategists polled by Bloomberg.
According to Societe Generale SA strategists, the surge in US equities will continue unabated despite a stronger forecast for corporate results and the frenzy around artificial intelligence.
Manish Kabra’s team raised its year-end prediction for the benchmark index to 5,500 from 4,750, the highest projection among strategists tracked by Bloomberg.
“US exceptionalism is going from strength to strength,” he wrote. “Despite widespread market optimism, we view this as rational rather than excessive.”
The newest analysis from GMO Asset Allocation’s team demonstrates the firm’s sustained confidence, despite the fact that market indices are at all-time highs.
“We are extremely excited about the investing landscape,” he added. “An abundance of cheap assets underpins this enthusiasm from an absolute return standpoint, while appealing valuation spreads within asset classes present us with the best relative asset allocation opportunity we’ve seen in 35 years.”
Meanwhile, rally-chasing investors who rode US equities higher this year have rushed to an upward trend that is occurring outside of the so-called Magnificent Seven, which have dominated the market: one in quality stocks.
According to Michael Kantrowitz of Piper Sandler & Co., when traders became enamoured with artificial intelligence, they flocked into stocks of firms throughout the broader market with high profitability and excellent fundamentals.
“AI is a subset of what’s driving momentum, but the rest is good old quality fundamental,” Kantrowitz said in a statement.
With the stock market setting new milestones, Matt Maley of Miller Tabak + Co. predicts that the “critical juncture” that we’ve been talking about will be resolved with additional positive movement.
“We still believe that a short-term pullback could take place at any time,” Mr. Maley added. “However, if it doesn’t come quickly and sharply — the odds that it will become a full-blown correction will drop.”