The historic rally in US stocks continued to power ahead, with the S&P 500 closing within a striking distance of 5,000.
Gains on Wednesday were fueled by a renewed surge in big tech and a strong sale of 10-year Treasuries that dimmed supply concerns. While bonds barely budged, equities extended their bull run on prospects that a solid economy will continue fueling corporate profits. In late trading, Walt Disney Co. and Arm Holdings Plc jumped on upbeat outlooks.
Traders shrugged off concerns about lofty valuations, February’s weak seasonality and cautious commentary from Federal Reserve officials — with stocks hitting fresh records. That positive tone in equities continued to prevail after the US government sold a record $42 billion of 10-year Treasuries at a lower-than-anticipated yield.
“The market continues to climb the wall of worry, including shifting Fed expectations, geopolitical tension, and overbought market conditions,” said Mark Hackett at Nationwide. “We are entering a sluggish seasonal period, but the market has strong momentum.”
February has the reputation of being a “digestion month” for the S&P 500, according to Sam Stovall at CFRA. However, when both January and February registered gains, the gauge saw a positive full-year total return 100% of the time, rising an average of 24%.
“Even though past performance is no guarantee of future results, this, along with other early-year indicators — such as posting all-time highs in January and February — point to an overwhelming probability of a good year following a great one,” Stovall said. “Brace for heightened volatility, however.”
Defying concerns about narrow market breadth, the “Magnificent Seven” technology companies — Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp., Nvidia Corp. and Tesla Inc. — continued to power gains this month.
Bets on a soft landing pushed US stocks to their first record in two years in January — marking a crucial milestone in the equity-market resurgence.
“Our base case is still for a soft landing where growth slows throughout the year, but remains healthy overall, while inflation does not prove to be overly sticky,” said Solita Marcelli at UBS Global Wealth Management. “And we do believe this environment will allow the Federal Reserve to start cutting rates by May, and by 100 basis points through year-end.”
Following the steps of all major US equity benchmarks, the MSCI World Index of developed-market shares also rose to a record.
Resilient economic growth in the US and an expected rebound in Europe are likely to support equities — even as some parts of the stock market look “frothy,” according to Barclays strategists led by Emmanuel Cau.
While one of the world’s largest exchange-traded funds sits at a crucial inflection point following a torrid rally since late October, further gains may be in store in the coming weeks. The Invesco QQQ Trust Series 1 (QQQ), which that tracks the Nasdaq 100, is trading near key resistance levels from three years ago relative to the broader SPDR S&P 500 ETF, better known by its ticker SPY.
If resistance from February 2021 is decisively pierced, the QQQ/SPY ratio is poised to rally more from here, with bullish confirmation for QQQ on absolute basis climbing to a new high, according to Anthony Feld at Bloomberg Intelligence.
Also on Wall Street’s radar on Wednesday was a raft of central bank speakers — all showing no rush to cut rates as already signaled by Fed Chair Jerome Powell.
At $42 billion, the 10-year Treasury sale eclipsed the $41 billion high-water mark reached in November 2020. With the latest changes to Treasury auction sizes announced last week, three of its seven notes and bonds, including the two- and five-year, are scheduled to hit record sizes in the February-to-April quarter.
The sale was one of three big tests for the market this week. Tuesday’s $54 billion auction of three-year notes also drew a lower yield than the one that had been predicted by trading at the bidding deadline, a positive sign. The US Treasury will complete its quarterly debt refunding Thursday with the sale of $25 billion of 30-year bonds.
First Published: Feb 8, 2024 4:38 AM IST
