Stocks ‘Bend, Don’t Break’ After Almost 30% Rally: Markets Wrap

(Bloomberg) -- The rally that drove the stock market up almost 30% from its October lows took a little break at the start of the new month amid calls for a near-term pullback.

Just a few days ahead of the all-important jobs report, data suggested some softening in demand for workers in a still tight labor market. The numbers weren't enough to entice investors, who also grappled with a mixed bag of corporate earnings. The S&P 500 finished the session with a small loss. Bonds fell, with the 30-year yield hitting its highest since November as the Treasury prepares to ramp up issuance of longer-dated securities.

“It looks like stocks on Wall Street are taking a breather from the relentless rally,” said Fawad Razaqzada, market analyst at City Index and Forex.com. While many traders are afraid of standing on the way of the rally, we could see some downside action — with investors likely to “sit on their hands” in the run-up to employment data and earnings from giants Apple Inc. and Amazon.com Inc.

In late trading, Advanced Micro Devices Inc. gained after the company topped second-quarter estimates and said it was making further inroads in artificial-intelligence computing. Starbucks Corp. dropped as its quarterly sales fell short of analysts' estimates, a sign that momentum may be slowing for the coffee giant amid higher prices and tighter pocketbooks.

Sell-Side Signals

Bank of America Corp. strategist Savita Subramanian noted there's no reason to fret just yet about the equity market. BofA's Sell Side Indicator — which tracks sell-side strategists' recommended stock allocations — is still in neutral territory despite increased allocations and stands closer to a “buy” rather than a “sell” signal.

“Rising equity allocations and falling bond allocations mark a reversal from the bond love and equity hate that built during 2022,” Subramanian added.

Equities have come a long way in a short period of time, but looking at different time frames, the gains don't look quite as impressive, according to Bespoke Investment Group. In the case of the S&P 500, over the last 12 months, it's still up about 11%, but on a two-year basis, performance looks much less attractive at a little over 4%. 

“That hardly looks like a market that has become unanchored from reality,” Bespoke strategists wrote.

Oppenheimer Asset Management's John Stoltzfus lifted his target on the S&P 500 index to a Street high, a day after Morgan Stanley's Michael Wilson, one of the market's leading doomsayers, sounded less bearish than usual. 

Stoltzfus now sees the S&P 500 index hitting 4,900 by the end of the year, leaving room for another 7% gain. The target would mark a new record for the gauge, and one that plays out against bearish predictions by prominent Wall Street names such as Wilson, JPMorgan's Marko Kolanovic and Bank of America Corp.'s Michael Hartnett.

Corporate Highlights:

• Tesla Inc. is the subject of another probe by US regulators, this time focusing on driver complaints about vehicles possibly at risk of losing control of steering. The shares fell.
• Uber Technologies Inc. reported its first-ever operating profit, but that milestone was eclipsed by a pace of growth that has decelerated from pandemic highs, sending the shares down the most in nine months.
• JetBlue Airways Corp. slashed its full-year profit forecast over signs of a slowdown in domestic demand, becoming the latest carrier to warn of a shift toward international routes and renewing questions about the durability of a post-pandemic surge in US travel.
• Norwegian Cruise Line Holdings Ltd. slipped after the company issued guidance for the third quarter that missed Wall Street's expectations.
• Caterpillar Inc. shares soared to a record after the company defied concerns of a global economic slowdown by reporting a bigger-than-expected profit and resilient demand for its iconic yellow machinery.

Key events this week:

• China Caixin Services PMI, Thursday
• Eurozone S&P Global Eurozone Services PMI, PPI, Thursday
• Bank of England rate decision, Thursday
• US initial jobless claims, productivity, factory orders, ISM Services, Thursday
• Eurozone retail sales, Friday
• US unemployment rate, non-farm payrolls, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3% as of 4 p.m. New York time
• The Nasdaq 100 fell 0.2%
• The Dow Jones Industrial Average rose 0.2%
• The MSCI World index fell 0.5%

Currencies

• The Bloomberg Dollar Spot Index rose 0.5%
• The euro fell 0.1% to $1.0982
• The British pound fell 0.5% to $1.2773
• The Japanese yen fell 0.8% to 143.40 per dollar

Cryptocurrencies

• Bitcoin rose 0.3% to $29,281.63
• Ether was little changed at $1,851.93

Bonds

• The yield on 10-year Treasuries advanced seven basis points to 4.03%
• Germany's 10-year yield advanced six basis points to 2.56%
• Britain's 10-year yield advanced nine basis points to 4.40%

Commodities

• West Texas Intermediate crude fell 0.2% to $81.67 a barrel
• Gold futures fell 1.3% to $1,982.30 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Jason Scott, Richard Henderson and John Viljoen.

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