Stocks Buoyed by Tech Rally With Powell in Focus: Markets Wrap
A rally in the world’s largest technology companies drove stocks higher, with traders wading through the latest economic data and awaiting Jerome Powell’s remarks for clues on the Federal Reserve’s next steps. Treasuries rose and the dollar fluctuated.
(Bloomberg) -- A rally in the world’s largest technology companies drove stocks higher, with traders wading through the latest economic data and awaiting Jerome Powell’s remarks for clues on the Federal Reserve’s next steps. Treasuries rose and the dollar fluctuated.
Equities headed toward all-time highs, with the S&P 500 set for its 56th closing record in 2024. The Nasdaq 100 climbed about 1%. Nvidia Corp. led a gauge of the “Magnificent Seven” megacaps higher as the group extended this year’s surge to 62%. Salesforce Inc. jumped 9% and Marvell Technology Inc. soared 24% as their results boosted hopes both companies will keep benefiting from an industrywide boom in artificial intelligence.
Just days ahead of the key jobs report, data showed employment at US companies remained firm in November while services activity expanded at the slowest pace in three months. Powell participates in a moderated discussion later Wednesday, and one of his favorite barometers of the economy — the Beige Book — will likely reflect the post-election surge in sentiment.
“Right now, the odds favor another cut this month followed by a pause in January, but a significant change in the jobs landscape could rearrange those puzzle pieces,” said Chris Larkin at E*Trade from Morgan Stanley.
The S&P 500 rose 0.4%. The Nasdaq 100 climbed 0.9%. The Dow Jones Industrial Average added 0.4%. European stocks advanced for a fifth consecutive session as German shares hit a fresh record. Investors were watching the no-confidence vote taking place in France.
Treasury 10-year yields declined four basis points to 4.18%. The market-implied odds of a quarter-point Fed cut this month have improved to around 70%. Additionally, a cumulative 80 basis points of easing is priced in by the end of next year.
To George Smith at LPL Financial, momentum could continue for stocks as December has been a good month for market seasonals.
It’s overall the second-best performing month since 1950 — with a 1.6% average gain — and the third-strongest over the past five years, according to Smith. When studying the proportion of positive monthly returns since 1950, December often delivers the highest proportion of positive monthly returns — around 74%.
Despite the seasonality, Smith doesn’t out the possibility of short-term weakness, especially as geopolitical threats have the potential to escalate. Equities may also need to readjust to what may be a slower and shallower Fed rate-cutting cycle than markets are currently pricing in, he noted.
“We remain tactically bullish into year-end given the positive macro environment, earnings growth, and a Fed that remains supportive of markets,” wrote JPMorgan Chase & Co.’s Market Intelligence Team led by Andrew Tyler. “It is sensible to play the market’s momentum and see low pullback potential until mid-January,” they say.
To some technical analysts who watch and analyze price moves, and strategists that keep an eye on investor sentiment, the initial rumblings are starting to sound a lot like a stock market that has overheated.
A Bank of America Corp. indicator that tracks sell-side strategists’ average recommendations remains at its highest level since early 2022, in neutral territory, but much closer to a contrarian “sell” signal than a “buy.”
“Statistically (and paradoxically), the impact of 2024’s big gains has made the market look riskier for long-term investors, but potentially safer for near-term speculators,” the Leuthold Group’s Doug Ramsey wrote this week. Leuthold’s major trend index (MTI) — which takes into account many different kinds of indicators — remains at a “high neutral,” but all of the indexes in the MTI closed last week with maximum-bullish readings.
All the short-term positioning, rally chasing and mechanical buying flow speaks to an attitude of just running with the market tide. That doesn’t stop the potential for things to change when the calendar flips into 2025.
“To put it simply, and probably no one wants to hear it, but this is not a good set up — investors and speculators alike have been lulled into permabull paradise,” writes Callum Thomas at Topdown Charts.
Investors have their hopes up for a Santa Claus rally, but a healthy dose of skepticism might be warranted after November’s stellar run-up, according to Callie Cox at Ritholtz Wealth Management.
“The bar for success is now a lot higher for an economy that may still be in flux,” Cox said. “Yields show that expectations have moved a lot over the past two months, yet we haven’t seen any sustained, clear momentum in economic data. Expectations matter, and the job market is under a microscope.”
To Mark Hackett at Nationwide, the sustainability of the market rally will be dependent on the continued resilience of the consumer. One of the best forecasters of consumer spending is the health of the job market.
“Markets continue to be driven by a combination of technical and fundamental factors,” Hackett noted. “The consistency of the rally is demoralizing to bears, creating a ‘virtuous circle’ where buying drives further buying. There are questions of sustainability into 2025 given elevated expectations and valuations, but that is unlikely to derail the near-term momentum.”
Appetite for equities has shown no sign of abating this year. The S&P 500 made multiple record highs, surging over 25%, powered by technology shares and a broad preference for US assets. The rally extended after the election of Donald Trump raised hopes of tax cuts and deregulation.
While American equities have persistently outpaced their global peers, BlackRock Investment Institute says that could continue. The US benefits more from “mega forces,” driving corporate earnings, the firm notes. That is supported by a favorable growth outlook plus potential tax cuts and regulatory easing.
“Some valuation measures – whether price-to-earnings ratios or equity risk premiums – look rich relative to history. But they may not tell the full story,” according to BII. “Comparing today’s index to that of the past is like comparing apples to oranges. Plus, valuations tend to matter more for returns over a long-term horizon than in the near term.”
BII says the AI mega force will likely benefit US stocks more and that’s why the firm stays overweight, particularly relative to global peers such as European stocks.
“The upshot: We are risk-on for now, but stay nimble. Key signposts for changing our view include any surge in long-term bond yields or an escalation in trade protectionism,” BII concluded.
Corporate Highlights:
Key events this week:
Some of the main moves in markets:
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This story was produced with the assistance of Bloomberg Automation.
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First Published:5 Dec 2024, 03:23 AM IST
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