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The stock market climbed to its highest level since early April, extending a rebound that’s been fueled by speculation the Federal Reserve will be able to cut interest rates this year.
Equities rose as higher-than-estimated jobless claims reinforced bets on US policy easing — with the market extending gains after a $25 billion sale of 30-year bonds saw good demand. The S&P 500 topped 5,200 amid below-average volume. The advance in stocks has also been attributed to Commodity Trading Advisors — who surf momentum — being modeled to buy shares this week.
“Our sense is that the rebound has been unloved, largely because economic surprises have turned modestly negative, and we believe this is likely to lead to additional near-term upside,” said Chris Senyek at Wolfe Research. “Looking out to year end, we expect to remain constructive on the outlook.”
To Doug Ramsey at Leuthold, another 10% gain in the S&P 500 isn’t out of the question, at least statistically. He analyzed 80 years of data on bull-market rallies, focusing on those that happened when unemployment was this low and the economic cycle this mature. If the current rally meets the prior records for length and height, the S&P 500 would end the year at 5,705.
The S&P 500 traded less than 1% away from its all-time high. Apple Inc. climbed as Bloomberg News reported the company will deliver some of its upcoming artificial-intelligence features this year via data centers equipped with its own in-house processors. Nvidia Corp. led losses in chipmakers.
Treasury 10-year yields declined four basis points to 4.46%. The pound rose, despite growing confidence the Bank of England can soon begin loosening policy.
A survey conducted by 22V Research shows investors are practically split on the S&P 500’s next 10% move — with 52% betting the benchmark gauge will go higher and 48% seeing a down move.
“To the extent that conviction in the next big move in asset prices remains mixed, expect correlations to remain low and stock picking and micro themes to dominate,” said Dennis DeBusschere, founder of 22V.
When it comes to the Treasury market, 68% of those surveyed by the firm believe the 10-year yield is going to 4% next — while only 32% said 5%.
Senyek at Wolfe Research noted that he’d remain constructive in equities unless the economy shows signs of spilling into recession, or inflation is sticky enough that the market starts to price in a Fed hike.
“Neither are part of our base case!” he said.
Initial applications for U.S. unemployment benefits rose last week to the highest level since August, topping estimates. U.S. policymakers are keeping a close eye on labor demand and wage growth as they debate when it might be appropriate to ease policy. Fed Bank of San Francisco President Mary Daly said rates are currently restraining the economy, but it may take “more time” to return inflation to their goal.
“Time will tell whether it’s a one-off or part of a genuine cooldown in the labor market,” said Chris Larkin at E*Trade from Morgan Stanley. “Investors may have adjusted to the idea of the Fed waiting until September to cut interest rates, but that doesn’t mean they’re comfortable waiting indefinitely.”
Blackstone Inc. President Jon Gray said economic growth will slow as stubborn inflation weighs on the Fed’s ability to begin lowering borrowing costs.
“We see a deceleration of growth,” Gray said at the Macquarie Australia Conference in Sydney on Thursday. “Central banks will be slow on the cutting of rates, because they don’t want to see a rise of inflation,” he said. “The Fed will be patient, they’ll have the opportunity to cut once this year,” he added.
If the economy is slowing, unemployment rising, inflation receding, and the Fed is expected to cut rates, there will be plenty of buyers for U.S. Treasury notes and bonds, according to Joe Kalish at Ned Davis Research.
“But make no mistake. When conditions change, prices can change too – and quickly!”
Kalish noted that the buyers of bonds are now different from the buyers of bonds during the quantitative-easing era. Currently, buyers are price-sensitive, and the burden has mostly fallen on households, he added.
“There will always be a price to clear the market,” he noted. “So now we are just haggling over the price.”
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Rita Nazareth, Bloomberg News , 2024-05-09 23:42:53
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