(Bloomberg) — A busy week on Wall Street began with gains in stocks and bonds, with the Treasury Department surprising several traders by lowering its quarterly borrowing forecast to $760 billion.
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U.S. Treasury yields fell on the news, and the tech-heavy Nasdaq 100 rose 1%, outperforming the results of five mega-cap stocks with market capitalizations of more than $10 trillion. Besides this week’s big earnings, investors are also awaiting a Federal Reserve decision and a slew of economic reports from consumer confidence to manufacturing to employment.
“This week could be the key,” said Chris Larkin of Morgan Stanley’s E*TRADE. “For the market to sustain its recent break, it will need to avoid disappointment in big tech’s results this week, get some encouraging news on interest rates from the Fed, and see solid but less-than-hot jobs data. Might happen. “
The S&P 500 topped 4,900, with Tesla leading the megacap rally. Amazon.com has abandoned its planned $1.4 billion acquisition of iRobot, and the Roomba maker’s stock price has fallen. The yield on the 10-year US Treasury note fell 7 basis points to 4.07%. The dollar swayed. Gains in oil prices dissipated as traders awaited a U.S. response to the attack that killed a U.S. soldier in Jordan.
This week will be the busiest earnings week of the season, with Microsoft, Alphabet, Apple, Amazon.com, and Meta Platforms reporting their results. With most of the mega-cap stocks at record levels, there are concerns that investors could be in for a downturn. It’s overexposed to just a handful of stocks, which could mean some pain if quarterly results are down.
According to JPMorgan Chase & Research, stock valuations, especially in the U.S., are on the decline, given that investors are pricing in significant earnings growth expectations in anticipation of lower interest rates sooner than Fed officials expect. The next few days will be crucial in determining whether the valuations of big-cap technology companies are sustainable. Company Marko Kolanovic.
“Every 800-pound gorilla is reporting this week,” said Paul Nolte of Murphy & Sylvest Wealth Management. “We expect to see some volatility in the market around these earnings. Combined with the Fed meeting, this week could be a bumpy ride into February.”
Dan Wantrowski of Janney Montgomery Scott is watching for more “profit-taking” and “consolidation” in the management space, which he says remains a near-term challenge. It is said to be overbought.
After a somewhat rocky start to the year, the S&P 500 has snapped a three-game streak of weekly gains and is up nearly 20% since late October.
The ratio of bulls to bears in an Investors Intelligence survey of newsletter writers was at its highest level since 2021 in the week ending January 23, according to analysis by Yardeni Research. At the time, the stock was nearing its historical peak ahead of the 2022 bear market. Another sign of growing bullishness was found in the American Association of Individual Investors’ weekly survey of retail investors.
From a fundamental perspective, U.S. economic data continues to provide a positive backdrop for the market, said Mark Hefele of UBS Global Wealth Management. He expects the Fed will feel comfortable starting to cut rates in May, but that will likely require further signs that the economy is cooling.
“In our view, stocks continue to price in a ‘perfect-for-all’ scenario in which the Fed cuts rates sharply and the U.S. economy slowly declines toward (at worst) a ‘soft landing,'” said Chris Seniek of Wolf Research. “There is,” he said. “We still don’t believe it, but we feel the Fed and the economy are now in a ‘show me’ story.”
Heading into this week’s two-day Fed policy meeting, investors are placing a near-even probability that the Fed will begin lowering borrowing costs at its next decision in March.
That’s why Fed Chairman Jerome Powell’s press conference, and every signal he sends or not, will be extremely important. It all depends on how officials have read the recent flurry of economic data. Meanwhile, inflation numbers continue to surprise on the downside. On the other hand, personal consumption continues to be surprisingly strong.
“It would be logical for the Fed to signal a rate cut in March,” said Robert Teeter of Silvercrest Asset Management. “Nonetheless, we expect the Fed to reverse its actions in March, simultaneously setting the stage for future rate cuts that are predicated on lifting overly restrictive rates.”
A recent survey from JPMorgan & Chase highlighted the wait-and-see mood, showing that the percentage of investors who are neutral about the bond market rose to the highest level since April.
“We believe the probability of the Fed cutting rates in the first quarter of 2024 remains low, and the long-awaited policy shift will not begin until mid-year,” said Saira Malik at Nuveen. “Nonetheless, as inflation declines and monetary policy expectations are readjusted, we urge investors to evaluate their taxable bond portfolio allocations and take advantage of the opportunities we see across asset classes. I encourage that.”
Powell and his colleagues are expected to keep benchmark borrowing costs in the 5.25% to 5.5% range. It could also consider when to start slowing the pace of unwinding its balance sheet, a process known as quantitative tightening.
The fate of QT will take center stage as the Fed tries to determine what level of bank reserves is appropriate, said Peter Boockvar, author of the Book report. According to Wrightson ICAP, the start of the Fed’s balance sheet unwinding is expected to take longer and further down the line than some had expected.
“One potential wild card could come in the form of market reaction to the Fed’s attempts to socialize the impending QT contraction,” said Ian Lingen and Ben Jeffrey of BMO Capital Markets. Stated. “While bonds are certainly bullish, there is a strong argument that much of the potential for SOMA rollovers to slow is already priced into US interest rate markets.”
Meanwhile, blue-chip companies took advantage of lower long-term borrowing costs to sell $176 billion in bonds in the US in January, setting a record for the month.
Sales shattered the previous January high of about $175 billion set in 2017, according to data compiled by Bloomberg News. And Wall Street bond syndication experts said there will likely be more selling toward the end of the month.
And the latest MLIV Pulse survey shows dollar bulls coming back strong.
About 62% of respondents surveyed from January 22 to 26 expect the Bloomberg Dollar Spot Index to rise over the next month. This is the highest level since September 2022. The dollar is heading for its best monthly performance since February of last year.
Company highlights:
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SoFi Technologies Inc. has reached profitability for the first time, moving the fintech one step closer to CEO Anthony Noto’s goal of turning the former anti-bank company into a top 10 financial institution.
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Reddit should consider a valuation of at least $5 billion after considering feedback from early meetings with potential investors in an initial public offering, according to people familiar with the matter. Stocks in private companies.
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Bayer AG has been ordered to pay approximately $2.3 billion to former Roundup users who blamed the herbicide for their cancer.
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Renault SA has withdrawn its plan to list its electric vehicle business and changed its policy, as it has lost the desire to sell its shares due to the slowdown in EV demand.
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Ryanair Holdings said it would jump at the chance to take additional deliveries of Boeing’s 737 Max planes from airlines that don’t want them, leaving the company in a predicament that has come under fire for quality issues following the mid-air panel explosion. He expressed his intention to support a certain American aircraft manufacturer. Month.
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Swiss cement maker Holcim has announced that it will spin off its North American unit as a separate U.S.-listed company, a move that could give the business a higher valuation.
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BYD’s preliminary net profit for 2023 is between 29 billion yuan ($4 billion) and 31 billion yuan, lower than analysts’ average estimate of 31.5 billion yuan, according to a Monday filing with the Shenzhen Stock Exchange.
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China Evergrande Group has been ordered liquidated by a Hong Kong court, beginning the daunting process of becoming the biggest casualty of the real estate crisis that is upending the world’s second-largest economy.
This week’s main events:
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Japan’s unemployment rate, Tuesday.
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Eurozone Economic Confidence, GDP, Consumer Confidence, Tuesday
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U.S. Conference Consumer Confidence Index, JOLTS Jobs, Tuesday
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Microsoft, Alphabet earnings, Tuesday
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China Non-Manufacturing PMI, Manufacturing PMI, Wednesday
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Japan’s industrial production, retail sales, housing starts, Wednesday
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The Bank of Japan announced a summary of its January policy meeting on Wednesday.
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Boeing releases financial results on Wednesday amid U.S. government safety investigation
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Wednesday’s Fed interest rate decision and Fed Chairman Powell’s press conference.
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U.S. Treasury Quarterly Refunds, Wednesday.
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China Caixin Manufacturing PMI Thursday
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Eurozone S&P World Manufacturing PMI, CPI, Unemployment Rate, Thursday
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US productivity, construction spending, ISM manufacturing, new unemployment claims, Thursday
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Apple, Amazon, Meta, Deutsche Bank, BNP Paribas earnings, Thursday
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Bank of England interest rate decision Thursday
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US employment statistics, University of Michigan consumer sentiment, factory orders, Friday
The main movements in the market are:
stock
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As of 3:31 p.m. New York time, the S&P 500 was up 0.7%.
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Nasdaq 100 rises 1%
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The Dow Jones Industrial Average rose 0.5%.
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MSCI World Index rose 0.7%
currency
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Bloomberg Dollar Spot Index little changed
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The euro fell 0.2% to $1.0836.
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The British pound was almost unchanged at $1.2714.
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The Japanese yen rose 0.6% to 147.33 yen to the dollar.
cryptocurrency
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Bitcoin rises 2.5% to $43,036.5
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Ether rose 1.4% to $2,295.61.
bond
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The 10-year Treasury yield fell 7 basis points to 4.07%.
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German 10-year bond yields fell 6 basis points to 2.23%.
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UK 10-year bond yields fell 9 basis points to 3.88%.
merchandise
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West Texas Intermediate crude oil fell 1.4% to $76.93 a barrel.
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Spot gold rose 0.7% to $2,032.52 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Isabel Lee, Jessica Mentone, Ye Xi, Michael McKenzie, and Kasia Klimasinska.
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