Finance

S&P 500 surpasses 5,600 mark in longest rally this year: market turnaround

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6 days ago

July 10, 2024

S&P 500 surpasses 5,600 mark in longest rally this year: market turnaround

(Bloomberg) — A rally by the world’s biggest technology companies sent stocks to record highs, with Jerome Powell’s comments before Congress doing little to deter traders from betting on Federal Reserve rate cuts this year.

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For the first time in its history, the S&P 500 topped 5,600 points. A renewed mega-cap bid lifted the US stock benchmark to its longest rally since November, with Nvidia Corp. rose more than 2.5% and Apple Inc. rose on news that it plans to sell 10% more new iPhones after a bumpy 2023. Treasury bonds were fairly steady after strong selling of $39 billion in 10-year bonds. Swaps factor in two Fed cuts in 2024 – and the first is more likely to come in September.

As Wall Street prepared for the consumer price index, Powell said the Fed doesn’t need inflation below 2% before cutting rates, saying officials still have more work to do. He noted that the labor market has cooled “quite significantly.” Powell called a “good way to go” on the balance sheet reduction, saying commercial real estate does not threaten financial stability.

“The key takeaway from his testimony is that the Fed’s assessment of the balance of risk is shifting in a way that – if supported and supported by incoming data – will deliver a rate cut in September,” Evercore’s Krishna Guha said.

The S&P 500 climbed 1% – for the seventh day in a row – for its 37th record this year. Gold and silver mining stocks rose on the Fed’s easing efforts. Banks underperformed. According to people with knowledge of the matter, Google parent company Alphabet Inc. the efforts to bring HubSpot Inc. to take over suspended.

The US ten-year yield fell by two basis points to 4.28%. Huw Pill, chief economist at the Bank of England, said the timing of a rate cut was still an “open question”, prompting traders to cut their bets on the August rate cut. Oil rose as a U.S. holiday boosted demand for gasoline and jet fuel.

“Markets remain remarkably calm despite the flood of data this week, including Fed Chair Powell’s testimony, CPI/PPI reports and the start of earnings season,” said Nationwide’s Mark Hackett.

The so-called core CPI, which excludes food and energy costs and is seen as a better gauge of underlying inflation, is expected to rise 0.2% for a second month in June. That would mark the smallest consecutive gains since August — a pace more palatable to Fed officials.

“The June CPI report appears to be another ‘very good’ report that should boost the FOMC’s confidence about the inflation trajectory,” said Anna Wong of Bloomberg Economics. “That should clear the way for the Fed to start cutting rates in September.”

A survey conducted by 22V Research shows that 55% of investors expect Thursday’s market reaction to be ‘risk-on’, 16% say ‘risk-off’ and 29% ‘mixed/negligible’.

“There is general optimism about inflation,” said Dennis DeBusschere at 22V, adding that the survey also found that investors think “the CPI is on a Fed-friendly glide path.”

Meanwhile, some trading desks say investors should prepare for a possible break in the eerie calm that has recently descended on the market.

The options market is betting that the S&P 500 Index will move 0.8% in either direction after Thursday’s consumer prices report, based on the price of that day’s at-the-money straddles, said Stuart Kaiser, head of the Citigroup US stock trading strategy.

If that happens, it would be the biggest move for the index since June 12, the day of the last CPI print and interest rate decision.

Market volatility could increase in the coming days and weeks, due to political uncertainty in the US, comments from the Fed chairman and the start of the second quarter earnings season, according to Mark Haefele of UBS Global Wealth Management.

For the first time since 2022, gains in the S&P 500 may not be purely tech-driven, with the quarter’s success hinging on everything aside from the mega-cap tech heavyweights that have driven stocks to record highs, Bloomberg Intelligence strategists say led by Gina Martin Adams.

“While forecasts for the ‘Magnificent Seven’ remain robust, their gains are expected to slow in the second quarter – just as the rest of the S&P 500 may finally post their first year-over-year growth in at least five quarters, ” they say. noted.

The Magnificent Seven may have already peaked, while the remaining S&P 500 stocks could post their first earnings gain in at least six quarters, the strategists concluded.

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