S&P 500 Hits All-Time High in Historic Bull Run

What You Need to Know

The benchmark topped 4,800 on Friday.
Investors are reverting to owning growth, technology and the “AI bubble” as the 10-year Treasury yield settles into a range of 3.75% to 4.25%, said BofA's Michael Hartnett.
Markets are overpricing the pace and amount of Fed-rate cuts as they overlook stubbornly high inflation, warns economist Mohamed El-Erian.

Wall Street is ending the week on a positive note, with stocks hitting an intraday record on speculation the Federal Reserve will start cutting rates this year — bolstering the outlook for Corporate America.

Another rally in the S&P 500’s most-influential group — technology — put the gauge on track to become the last of the three major U.S. benchmarks to close at an all-time high.

Fueled by hopes the artificial-intelligence boom will keep powering the market higher, the benchmark topped 4,800 on Friday — defying concerns that the rally remains concentrated in a narrower group of shares. (It traded near 4,836 as of 2:40 p.m. in New York.)

Equities pushed higher on Friday as a drop in Treasury volatility continued to bode well for risk-taking. Also helping sentiment was a report seen by many as “Fed-friendly,” showing a mix of high consumer confidence and lower inflation expectations.

“Overall, it was an encouraging round of data from the Fed’s perspective,” said Ian Lyngen at BMO Capital Markets.

The S&P 500 added 1%, erasing this week’s losses. The tech-heavy Nasdaq 100 outperformed as chipmakers once again led gains, with Texas Instruments Inc. up 3.5% and Advanced Micro Devices Inc. heading toward a record.

Megacaps also pushed higher, though Tesla Inc. struggled. Treasury 10-year yields were little changed. The same group of companies that led a stellar run in stocks last year is once again fueling gains in 2024.

So far in January, Nvidia Corp., Microsoft Corp., Meta Platforms Inc. and Alphabet Inc. — all part of the “Magnificent Seven” — are the biggest point gainers in the S&P 500. Meantime, semiconductor shares got a boost this week from a bullish forecast Taiwan Semiconductor Manufacturing Co., which bolstered prospects for the tech industry in 2024.

‘AI Bubble’ Is Back

Investors are reverting to owning growth, technology and the “AI bubble” as the 10-year Treasury yield settles into a range of 3.75% to 4.25%, according to Bank of America Corp.’s Michael Hartnett.

While U.S. shares saw redemptions at $4.3 billion in the week through Jan. 17, tech-stock funds saw the biggest two-week inflow since August at $4 billion, BofA said, citing EPFR Global data.

“Bottom line, we’re off the bullish boil and the boat is less full, but it’s still leaning firmly positive,” said Peter Boockvar, author of the Boock Report.

History sides with further gains ahead. The S&P 500 went 512 trading days without a record through Thursday, which ranks as the sixth-longest streak since 1928, according to Ed Clissold, chief U.S. strategist at Ned Davis Research.

One year after hitting new highs, the index has risen 13 out of 14 times by a median of 13% in that span.

The combination of better-than-expected growth and a meaningful improvement in inflation — which gives the Fed flexibility to cut interest rates — is giving UBS’s Chief Investment Office greater conviction in its base case for an economic soft landing.

Going Higher

“Our June and December S&P 500 price targets are 4,900 and 5,000, respectively,” said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management. “We maintain a neutral preference for US equities in our tactical asset allocation. With S&P 500 valuations full, in our view, we look for a pickup in earnings growth to be the primary driver of the somewhat modest upside that we expect.”

Traders also kept a close eye on remarks from central bank officials.

Fed Bank of Chicago President Austan Goolsbee said a continued decline in inflation would merit discussion of reducing rates, though he stressed the central bank will make decisions meeting-by-meeting.

His Atlanta counterpart Raphael Bostic said he’s open to changing his views on the timing of cuts depending on the data, though he wants to be sure inflation is “well” on the way to the 2% goal before easing policy.

He spoke just hours before the Fed’s traditional pre-meeting communications blackout period.

Markets are overpricing the pace and amount of Fed-rate cuts as they are overlooking stubbornly high inflation, according to economist Mohamed El-Erian.

“I do think that we get to the pivot, but relative to what the market expects, it won’t be as fast or as deep,” said El-Erian, president of Queens’ College, Cambridge, and a Bloomberg Opinion columnist.

Traders have tempered their wagers on rate cuts as US economic data continued to show resilience and Fed officials emphasized they want to ensure inflation is tamed before embarking on any cuts.

Markets are now pricing in about 1.4 percentage points of reductions this year, compared with expectations of as much as 1.7 percentage points of easing as recently as last week.

Policymakers penciled in three rate cuts in projections released after their December gathering. The Fed, which left interest rates unchanged last month, is anticipated to keep rates in a range of 5.25% to 5.5% for a fourth straight meeting when they convene Jan. 30-31.

This story was produced with the assistance of Bloomberg Automation.