Wall Street Holds Back on Big Bets Before Key Data: Markets Wrap

(Bloomberg) -- The relentless rally in stocks took a breather on Monday, with traders awaiting this week&#039;s batch of jobs data and remarks from Federal Reserve officials for clues on the interest-rate outlook.In the absence of fresh catalysts, equities showed signs of exhaustion after a rally that drove the S&amp;amp;P 500 to its 15th record in 2024. Treasuries fell, with syndicate desks calling for $30 billion of new high-grade bond sales this week.Speaking Wednesday and Thursday, Fed Chair Jerome Powell is expected to double down on his message that there&#039;s no rush to cut rates. Meantime, data forecast to show labor-market cooling should reinforce bets on policy easing.&ldquo;If the S&amp;amp;P 500 is going to make this the eighth-straight week it hits an all-time high, it will likely need to hear encouraging words from Powell about rate cuts in his two days of congressional testimony, and avoid any major surprises from jobs data,&rdquo; said Chris Larkin at E*Trade from Morgan Stanley.The S&amp;amp;P 500 edged lower. Tesla Inc. sank over 7%. Nvidia Corp. climbed 3.6%, overtaking Saudi Aramco to become the world&#039;s third-most valuable public company. Super Micro Computer Inc., which will join the US equity benchmark this month, has now surged almost 1,000% in the past 12 months. New York Community Bancorp slid after Friday&#039;s credit downgrades.US 10-year yields increased four basis points to 4.22%. Bitcoin topped $67,000. Gold rose above $2,100.The S&amp;amp;P 500 saw its 16th weekly gain in the last 18 &mdash; something that hasn&#039;t happened since 1971, according to Deutsche Bank AG. If the gauge makes 17 out of 19 this week, it will be for the first time since 1960&#039;s, the firm noted.&ldquo;We&#039;re seeing some incredible levels being broken from many different risk assets,&rdquo; said Matt Maley at Miller Tabak. &ldquo;Some of this is justified, but others are a sign of &lsquo;froth.&#039; This means that the risks are rising in the stock market, and thus investors need to avoid becoming too complacent.&rdquo;Marko Kolanovic at JPMorgan Chase &amp;amp; Co. also see signals of accumulating &ldquo;froth&rdquo; in the market.&ldquo;This may keep monetary policy higher for longer, as premature rate cutting risks further inflating asset prices or causing another leg up in inflation,&rdquo; he wrote.To Chris Senyek at Wolfe Research, the US equity market is likely to push higher until economic data signals a significant slowdown ahead or inflation looks sticky enough to keep the Fed from cutting rates deeply and quickly.&ldquo;The market&#039;s relentless rally, in which it embraces even the mostly slightly bullish news and ignores any bad news (known as a &lsquo;Teflon&#039; market because nothing sticks) is raising this question: Can anything make the stock market decline?&rdquo; said Tom Essaye, founder of The Sevens Report. &ldquo;The answer, of course, is &lsquo;yes&#039;.&rdquo;Slowing growth, reduced rate-cut expectations, falling earnings expectations are among the factors that could lead to that, he added.Nouriel Roubini, the economist known for his bearish outlook ahead of the 2008 global financial crisis, expressed optimism that US growth will remain brisk this year &mdash; though that might be a negative for stocks.&ldquo;There actually is a serious possibility of what people refer to as a &lsquo;no landing,&#039; that growth remains above potential and inflation remains sticky,&rdquo; Roubini told Bloomberg Surveillance. &ldquo;Paradoxically, the good news on growth may be bad news for the market if that implies the Fed is not going to cut as much and as soon as people expect.&rdquo;Fed Bank of Atlanta President Raphael Bostic said he expects the Fed&#039;s first cut &mdash; which he has penciled in for the third quarter &mdash; will be followed by a pause the following meeting to assess how the policy shift is affecting the economy.Powell heads to Capitol Hill for his semiannual testimony before Congress &mdash; two years after the central bank began its aggressive battle against surging inflation. With the economy powering along and inflation inching toward the Fed&#039;s sweet spot, Powell will make the case for why officials are in no rush to lower rates.Fed officials&#039; most recent quarterly forecast in December was for three quarter-point cuts this year &mdash; and the bond market has embraced that view, based on the prices of swap contracts that reference future Fed meeting dates.&ldquo;If Powell says something to the effect that rate cuts will come in the second half of the year, then that can catalyze a move to pricing in two cuts,&rdquo; said Steve Bartolini, portfolio manager at T. Rowe Price Group Inc.Bets on Fed-rate cuts and the artificial-intelligence euphoria spurred a fourth-consecutive month of gains for stocks &mdash; defying concerns that the market has topped after its almost 35% run since the start of last year.The gains have left strategists scrambling to lift their end-2024 targets.Bank of America Corp.&#039;s Savita Subramanian was the latest to ratchet up her forecast for the S&amp;amp;P 500 to among the highest on Wall Street.She now expects the benchmark to end the year at 5,400, compared with her earlier target of 5,000. Indicators are flashing bullish signals on stronger earnings growth ahead and &ldquo;surprising&rdquo; profit margin resilience, she said. The S&amp;amp;P 500&#039;s advance to a record high &mdash; fueled by a small group of supercharged technology stocks &mdash; doesn&#039;t resemble past bubbles, according to strategists at Goldman Sachs Group Inc.Stocks with an enterprise value-to-sales ratio of above 10 account for 24% of total US equity market capitalization, versus 28% during 2021 and 35% during the tech bubble, strategist David Kostin wrote. However, the breadth of &ldquo;extreme valuations&rdquo; is far more contained with the number of stocks trading at those multiples down sharply from the peak in 2021, he added.&ldquo;This time is different,&rdquo; Kostin said. &ldquo;Unlike the broad-based &lsquo;growth at any cost&#039; in 2021, investors are mostly paying high valuations for the largest growth stocks in the index. We believe the valuation of the Magnificent 7 is currently supported by their fundamentals.&rdquo;Corporate Highlights:US aviation safety regulators found Boeing Co. failed to comply with manufacturing quality control requirements on &ldquo;multiple&rdquo; occasions, according to an audit launched in response to response a harrowing near-disaster involving a new Alaska Airlines 737 Max 9 jet in January.Apple Inc. was hit Monday with a &euro;1.8 billion ($2 billion) penalty from the European Union over an investigation into allegations it shut out music-streaming rivals, including Spotify Technology SA, on its platforms.American Airlines Group Inc. agreed to buy 260 short-haul aircraft that include a huge deal for Boeing Co. 737 Max jets, a key endorsement of the planemaker as it works through a crisis of confidence following a near-catastrophic accident in January.Coinbase Global Inc., the biggest US cryptocurrency exchange, said some individual investors saw zero balances in their accounts for the second time in less than a week.JetBlue Airways Corp. formally abandoned its pursuit of Spirit Airlines Inc. more than a month after a federal judge blocked the $3.8 billion acquisition on antitrust grounds.Arkhouse Management Co. and Brigade Capital Management boosted their offer for Macy&#039;s Inc. by 14% after the retailer rebuffed a previous proposal.Key Events This Week:Bank of Japan Governor Kazuo Ueda speaks, TuesdayChina Caixin services PMI, TuesdayChina kicks off its 14th National People&#039;s Congress, TuesdayEurozone S&amp;amp;P Global Services PMI, PPI, TuesdayUS factory orders, ISM services, S&amp;amp;P Global Services PMI, TuesdaySuper Tuesday in the US, with North Carolina, California, Texas and Oklahoma among more than a dozen states holding Republican and Democratic primariesCanada rate decision, WednesdayEurozone retail sales, WednesdayUS ADP employment, JOLTS job openings, WednesdayFed Chair Jerome Powell testifies before the House Financial Services Committee, WednesdayFed issues Beige Book, WednesdayFed&#039;s Neel Kashkari (Minneapolis) and Mary Daly (San Francisco) speak, WednesdayChina trade, forex reserves, ThursdayEuropean Central Bank&#039;s rate decision, ThursdayUS initial jobless claims, trade, ThursdayPresident Joe Biden delivers the State of the Union address, ThursdayFed Chair Jerome Powell testifies before the Senate Banking Committee, ThursdayCleveland Fed President Loretta Mester speaks, ThursdayEurozone GDP, FridayUS nonfarm payrolls, unemployment, FridayNew York Fed President John Williams speaks, FridayECB Governing Council member Robert Holzmann speaks, FridaySome of the main moves in markets:StocksThe S&amp;amp;P 500 fell 0.1% as of 4 p.m. New York timeThe Nasdaq 100 fell 0.4%The Dow Jones Industrial Average fell 0.2%The MSCI World index was little changedCurrenciesThe Bloomberg Dollar Spot Index was little changedThe euro rose 0.2% to $1.0857The British pound rose 0.3% to $1.2690The Japanese yen fell 0.3% to 150.53 per dollarCryptocurrenciesBitcoin rose 7.6% to $67,638.91Ether rose 3.4% to $3,595.41BondsThe yield on 10-year Treasuries advanced four basis points to 4.22%Germany&#039;s 10-year yield declined two basis points to 2.39%Britain&#039;s 10-year yield was little changed at 4.12%CommoditiesWest Texas Intermediate crude fell 1.5% to $78.75 a barrelSpot gold rose 1.7% to $2,117.36 an ounceThis story was produced with the assistance of Bloomberg Automation.--With assistance from Michael Mackenzie and Elizabeth Stanton.More stories like this are available on bloomberg.com&copy;2024 Bloomberg L.P.

Wall Street Holds Back on Big Bets Before Key Data: Markets Wrap

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