(Bloomberg) – Wall Street traders felt little courage to continue pushing the stock market higher early in the week when the last inflation figures before the Federal Reserve’s decision were released.
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Stocks fell on Monday as investors awaited further clues about whether the recent rise in consumer prices was just a flash in the pan or whether the disinflationary trend is stalling. The S&P 500 index, which has closed at record highs 16 times this year, is showing signs of overheating, spurring warnings of a near-term collapse in the absence of new catalysts.
“It would be natural to see a fly in the ointment and a monkey in the wrench to restore investor expectations,” said Jason de Sena Trenato of Strategas. “Stock prices, credit spreads, and gold and Bitcoin prices suggest that financial conditions are far from restrictive.”
The S&P 500 index is hovering around 5,100. Boeing’s decline in 2024 widened to more than 25%. Facebook parent company Meta Platforms fell 4%. Tesla rose following last week’s decline. Treasuries are also under pressure as traders brace for another surge in high-quality corporate bonds. Bitcoin reached $72,000.
U.S. consumers’ expectations for inflation over the next three years rose in February and rose even more sharply over the five-year period, according to a New York Fed survey. The figures come ahead of data expected to show that inflation has slowed, perhaps only gradually, over the past month, and show why U.S. officials are in no rush to cut interest rates.
Signs of U.S. economic resilience and an improving earnings outlook have pushed the S&P 500 higher in 16 of the past 19 weeks. Some of those gains could be reversed if Tuesday’s consumer price index reading shows that inflation remains stubbornly stubborn.
Over the past 12 months, the S&P 500 index has fallen on just four CPI release days, but these sessions have been more volatile this year. Over the past six months, stock indexes have moved about 0.8% in either direction on CPI release dates, according to data compiled by Bloomberg. This is the highest since April and up from less than 0.5% in September.
“We expect more volatility surrounding these announcements as investors continue to determine the direction of interest rates,” said Paul Nolte of Murphy & Sylvest Wealth Management.
Meanwhile, CFRA’s Sam Stovall said several Wall Street sentiment indicators are now showing increasing levels of “frothiness.”
These include the American Association of Individual Investors’ latest membership survey, which showed “unusually high” levels of bullishness, and CNN’s Fear/Greed index, which recently recorded “extreme greed,” he said. pointed out. Stovall also noted that the percentage of S&P 1500 sub-industries trading above their 50-day and 200-day averages has just reached a threshold that generally indicates an overbought market.
“Despite these ‘mini-bubbles,’ history reminds us that prior profit absorption rates after a recovery averaged 8%, followed by a 10.6% recovery,” Stovall said. I concluded. “While the S&P 500 is set to digest and benefit from recent gains, history suggests you shouldn’t wait too long to add to your holdings.”
Investors have already factored in a lot of good news into the stock, and are likely moving ahead of upcoming data that supports the soft-landing story, said Anthony Saglimbene of Ameriprise.
“In our view, stocks are either past some level of correction or are likely to see an extended period of gradual decline at some point this year,” he said. Barring any meaningful change in fundamental conditions, investors will welcome such a downdraft and treat this event as a buying opportunity. ”
The sharp rise in U.S. stocks since October has prompted comparisons on Wall Street to the boom-bust cycle of the late 1990s. However, Bank of America strategists say there is “no sign of a bubble forming” in the S&P 500 at this stage.
“Equity sentiment has increased since mid-2023, and our level of confidence in the bull market has declined slightly, but it is nowhere near the bullish levels of historic market peaks,” BofA strategists led by Savita Subramanian wrote. said. “In our view, this bull market has good potential.”
Another aspect is that strong profits by some of the biggest technology companies have dragged down very high valuations. Although still relatively growing, it is still well below its previous peak.
Shares of the Magnificent Seven, for example, are trading close to their average price-to-earnings ratio since 2015, according to data compiled by Bloomberg. The group consists of Apple Inc., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc., Microsoft Corp., Nvidia Corp., and Tesla Inc.
A growing number of Wall Street strategists are downplaying concerns about a bubble in U.S. tech giants.
The JPMorgan Chase team finds that the seven tech giants that have led Wall Street’s record stock price gains are now valued at less than the five-year average compared to the rest of the S&P 500. Recently reported. .
“While we are concerned about Magnificent 7’s very strong outperformance, we note that the group is currently not as stagnant as it was a few years ago, given its revenue performance,” strategist Mislav Matejka said in a note. ” he said. “This is not to say that this group is immune to future earnings disappointments, but even if overall earnings are disappointing, these stocks will still outperform traditional cyclical stocks depending on the strength of the economy,” he said. There is a possibility that it will hold up.”
For investors wondering how much the Magnificent Seven will lift the S&P 500 index, the breadth of the U.S. stock market is improving. While tech companies remain in the lead, the equal-weighted version of the S&P 500, where companies such as Nvidia have the same weight as Dollar Tree, hit an all-time high on Thursday.
“Last week’s market movements showed that investor appetite for stocks is growing,” said John Stoltzfus of Oppenheimer Asset Management. “This has led to a mix of profit-taking across sectors that have performed very well since the start of the year, as well as rotations and rebalancing to sectors, market caps, and styles that have lagged in performance.”
For Strategas’ Trennert, it’s hard to know how much the stock’s performance will increase from current levels, given the high market valuations and relatively low yields on the 10-year Treasury.
“We remain ‘bullish until the bill expires’, which we define as a rise in long-term Treasury yields.”
February’s bond sell-off, which pushed U.S. Treasury yields to their highest levels this year, was due in part to strong consumer price data in January, an area of concern for the U.S. central bank. It showed unexpected strength of service. Since then, traders have ramped up bets on another rate cut as economic data strengthened the idea that the Fed could start cutting rates before the end of the year.
The positive outlook for bonds hit a record high in Bloomberg’s weekly customer survey.
In the latest MLIV Pulse poll, 60% of 238 respondents said they thought 10-year Treasury yields would fall in a month. This was the strongest vote for bonds since the survey first began asking questions in August 2022. The survey was conducted March 4-8 but ended before Friday’s non-farm employment report.
Company highlights:
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Boeing Co. sank after the Justice Department opened a criminal investigation in January into a mid-air explosion of a 737 Max 9’s fuselage panel.
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Delta Air Lines expects deliveries of Boeing Co.’s 737 Max 10 planes could be delayed until at least 2027 as the troubled plane maker faces federal safety and criminal review. .
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MicroStrategy Inc. bought an additional 12,000 Bitcoins for $821.7 million. This is the enterprise software maker’s second-largest purchase since it began acquiring cryptocurrencies nearly four years ago.
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Reddit Inc. has revealed details of what is expected to be one of the largest initial public offerings of the year, with the company and some existing shareholders aiming to raise up to $748 million.
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US natural gas producer EQT has agreed to buy back the shares of its former division, Equitrans Midstream, for approximately $5.5 billion. This is the latest in a flurry of deals in the oil and gas pipeline industry.
This week’s main events:
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Japan PPI, Tuesday
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UK Monetary Policy Committee quarterly meeting attended by Bank of England Governor Andrew Bailey on Tuesday
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EU finance ministers meet in Brussels on Tuesday
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ECB Executive Board Member Robert Holzmann, Tuesday
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US Consumer Price Index, Tuesday
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Eurozone industrial production, Wednesday
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ECB Executive Board member Giannis Stournaras speaks on Wednesday
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Volkswagen, Adidas financial results, Wednesday
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US PPI, Retail Sales, New Unemployment Insurance Claims, Business Inventories, Thursday
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Chinese real estate prices Friday
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Japan’s largest trade union federation announces results of annual wage negotiations on Friday ahead of Bank of Japan policy meeting
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Bank of England releases inflation survey on Friday
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US Industrial Production, University of Michigan Consumer Sentiment, Empire Manufacturing, Friday
The main movements in the market are:
stock
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As of 1:49 p.m. New York time, the S&P 500 was down 0.2%.
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Nasdaq 100 falls 0.5%
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The Dow Jones Industrial Average is little changed.
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MSCI World Index falls 0.4%
currency
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Bloomberg Dollar Spot Index little changed
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The euro fell 0.1% to $1.0926.
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The British pound fell 0.4% to $1.2807.
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The Japanese yen rose 0.1% to 146.87 yen to the dollar.
cryptocurrency
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Bitcoin rose 4.5% to $72,552.68
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Ether rose 3.5% to $4,042.22
bond
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The 10-year Treasury yield rose 2 basis points to 4.09%.
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Germany’s 10-year bond yield rose 4 basis points to 2.30%.
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UK 10-year bond yield remains unchanged at 3.97%
merchandise
This article was produced in partnership with Bloomberg Automation.
–With assistance from Jessica Mentone, Matt Turner, Aleksandra Semenova, and Kasia Klimasinska.
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