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Portfolio > Economy & Markets

S&P 500 Rises as Stocks Build on Record High

By Rita Nazareth

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Stocks advanced as expectations for resilient economic growth and solid corporate results bolstered Wall Street’s risk-on bid.

Equities are shaking off a rocky start to the year amid conviction that the Federal Reserve will soon cut interest rates and bets that the artificial-intelligence boom is set to continue.

Meanwhile, earnings season continues to roll in, with companies including Netflix Inc., Tesla Inc. and Intel Corp. due to release results this week.

“The equity rally we are seeing is based on on the soft-landing scenario that’s being priced,” said Charles Diebel at Mediolanum International Funds. “If the economy does well, then why would you sell equities? And the counterfactual for equity markets is that if things do weaken, they will get rate cuts.”

The S&P 500 extended its advance above 4,800, led by gains in big tech. Treasury 10-year yields declined three basis points to 4.09%. The dollar wavered.

Last week’s record close for U.S. stocks has pulled valuations back to the highs seen last July. But a closer look shows that the market isn’t as expensive as it appears, according to Citigroup Inc.’s Scott Chronert.

Gains in Apple Inc., Microsoft Corp., Nvidia Corp., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc. and Tesla Inc. have powered the resurgence on Wall Street, largely based on optimism around artificial intelligence and cost-cutting efforts at these companies.

S&P 500 Equal Weight Isn't Expensive | Megacaps are driving S&P 500 valuations higher

The equally weighted version of the S&P 500 strips out some of their outsized influence and results in a ratio of around 16 times forward earnings, a discount of 17% to the benchmark’s standard valuation.

“Valuation is a common pushback to our constructive S&P 500 outlook,” the strategist wrote. “In our view, index P/E can be misleading.”

Options traders are betting on more gains in the S&P 500 after it hit a record high on Friday.

A slew of bullish wagers shifted the yardstick of what’s seen as the upper bound of the US benchmark’s trading range.

The so-called call wall has moved to 5,000 points from 4,800 — signaling that traders see the market clearing the next hurdle toward further gains, according to SpotGamma data. That points to a further 3.3% of upside, based on Friday’s close.

“We may just get the upside follow-through that we too to signal that last week’s breakout to new all-time highs in the S&P 500 and the Nasdaq 100 has been confirmed,” said Matt Maley at Miller Tabak + Co.

“We do need to point out that both indices are reaching overbought levels, so they could take a breather at any time. However, as long as any ‘breathers’ do not become severe reversals, the bulls have a lot going for them right now,” he added.

This Part of 2024 Outlooks Is Getting Outdated | We asked: Which of these consensus trades already looks the most foolish?

The Ned Davis Research Leading Indicator Model — based on 10 indicators that typically lead the S&P 500  — has already been flashing bullish for most of the past year. The majority of the components are price-based and include one on sentiment with two others on macroeconomics.

Although the model is just off its highs, with four of the seven bullish indicators starting to weaken including financials, volume demand and weekly new highs on the New York Stock Exchange, the key gauge still points to equity strength.

The latest warning for investors unleashing dovish monetary wagers across the board: Two thirds of Bloomberg Markets Live Pulse respondents said that betting on early monetary easing is the “most foolish” among popular trades heading into 2024.

Even as the S&P 500 closed Friday at an all-time high, money managers and analysts are contending with data that signals US economic resilience and Federal Reserve officials who’ve pushed back against reducing interest rates too soon.

apanese Stocks Euphoria Underscores BOJ Hopes | Central bank seen sticking with easy settings for now

Two major Wall Street firms are recommending investors start buying five-year US notes after they saw their worst rout since May last week.

Morgan Stanley sees scope for a rebound in Treasuries on expectations data in the coming weeks may surprise to the downside.

JPMorgan Chase & Co. is suggesting investors buy five-year notes as yields have already climbed to levels last seen in December, though it warned that markets are still too aggressive in pricing for an early start to central bank interest-rate cuts.

(Image: tadamichi/Adobe Stock)

 

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