Stock Bull Run Powers Ahead as US Economy Roars: Markets Wrap – Yahoo Finance

February 2, 2024

(Bloomberg) — Stocks extended their gains this week as a rebound in big tech companies and solid employment data supported the outlook for corporate profits.

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Stocks hit record highs, with the S&P 500 nearing 5,000 and the Nasdaq 100 up 1.7% on bullish outlooks from Meta Platforms Inc. and Amazon.com Inc. Economic optimism outweighed expectations that the Federal Reserve is in no hurry to cut interest rates. The yield on two-year government bonds rose 16 basis points to 4.36%. The dollar rose to its highest level since December.

“Today’s employment numbers cast doubt on the ‘soft landing’ narrative,” said David Donabedian of CIBC Private Wealth US. “January’s jobs numbers were pretty dramatic and suggested a potential ‘no-landing’. The economy is developing rapidly.”

According to Neil Dutta of Renaissance Macro Research, the strong growth in labor productivity means that unit labor costs are under control, which is a positive backdrop for corporate profits. eToro’s Brett Kenwell said it was “hard to be too bearish” when the economy’s resilience is this strong. Larry Tentarelli of Blue Chip Daily Trend Report sees the data as a “very bullish sign for the economy,” adding, “I’m a buyer on short-term stock weakness.”

“Just as many people were caught off guard by a recession that didn’t happen in 2023, it’s possible that another year will go by without a recession,” said Chris Zaccarelli of the Independent Advisor Alliance. There’s always that.”

Non-farm employment increased by 353,000 people last month, following an upward revision from the previous two months. The unemployment rate remained at 3.7%. Hourly wages accelerated from the previous month, marking the largest increase since March 2022. Separate data showed that US consumer sentiment rose sharply.

Signs of a strong economy may continue to bode well for U.S. businesses, but the data only confirms the idea that the Fed will delay the start of rate cuts.

“I think we can officially kiss it goodbye with a rate cut in March, and probably May,” said Alex McGrath of North End Private Wealth.

Federal Reserve President Michelle Bowman expects inflation to fall further if interest rates remain at current levels, but said it is too early for officials to consider cutting rates.

The swap contract, which references the date of the March Fed meeting, cut the probability of a quarter-point rate cut in half to about 15%. Meanwhile, the May contract has completely stopped pricing in rate cuts for more than a month.

“A March rate cut is becoming increasingly unlikely,” said Jason Pride of Glenmede. “The likely trajectory would be two to three cuts this year starting around summer.”

Principal Asset Management’s Seema Shah says January was not just a strong month for the labor market. Last month turned out to be better than initially thought.

“The dramatic upside surprise for both employment and wage growth means that the March rate cut will have to be taken off the table for now, and the May rate cut is now frozen,” he said. This means that there is a possibility that

Following Wednesday’s Fed decision, Chairman Jerome Powell said a rate cut was unlikely at its next meeting in March. He will appear on CBS News’ 60 Minutes this Sunday to discuss inflation risks, expectations for interest rate cuts and the banking system, among other topics, the station said.

Powell’s pushback against the Fed’s readiness to cut interest rates in March appears particularly “well-timed,” said Pacific Investment Management’s Tiffany Wilding.

For Charles Schwab’s Richard Flynn, Friday’s numbers may be another factor in delaying the Fed’s first interest rate cut as the summer approaches, but that’s a bad thing if the economy remains on a comfortable trajectory. Maybe not.

“What’s the hurry?” he asks.

Nationwide’s Mark Hackett said the market’s strong rally remains at near-unprecedented levels and is “unable to break momentum,” in part due to changing expectations about the Fed’s outlook.

“Investors who have been sitting on the sidelines are starting to capitulate, but combined with the resurgence of share buybacks after earnings season, this should be a tailwind for the market,” Hackett said.

Stocks rose on Friday, led by gains in mega-capitalization stocks that sent the market soaring from its lows.

Meta surprised shareholders with another impressive earnings report, soaring 20% to a record. The surge added $197 billion to the company’s market capitalization, making it the largest single-session value addition and surpassing the $190 billion increase Apple Inc. and Amazon.com Inc. received in 2022.

Bank of America’s Michael Hartnett said the rush into tech stocks is similar to the dot-com era and reflects an assumption that the economy will remain strong despite monetary tightening.

He noted that 75% of investors are expecting a soft landing and 20% are expecting a no-landing scenario. But while a soft landing should support a broader range of stocks, the so-called Magnificent Seven accounted for 45% of the S&P 500’s return in January, reflecting a “no-landing/bubble tilt.” he said.

In other company news, Apple Inc. capped a decline in its stock price as investors expected the slump in the company’s China business to worsen. Exxon Mobil and Chevron beat profit estimates as better-than-expected output from shale fields cushioned the blow from falling oil prices. Local bank indicators recovered after two days of stagnation.

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