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S&P 500 Treads Water After Its $2.7 Trillion Rally: Markets Wrap

S&P 500 Treads Water After Its $2.7 Trillion Rally: Markets Wrap
An electronic ticker at the Tokyo Stock Exchange (TSE), operated by Japan Exchange Group Inc. (JPX), in Tokyo, Japan, on Thursday, Oct. 29, 2020. Japanese stocks pared losses after the Bank of Japan’s policy decision and as U.S. futures bounced back following a global equity rout. Photographer: Kiyoshi Ota/Bloomberg

Stocks wavered after a $2.7 trillion rally in November that was fueled by bets the Federal Reserve will end its hiking cycle to prevent an economic recession. The dollar erased its 2023 advance.

The S&P 500 was little changed, while still heading toward its longest streak of weekly gains since July. Piles of derivatives contracts tied to stocks and indexes mature Friday — which could amplify market instability. Applied Materials Inc. sank on a report it faces a US criminal probe for allegedly violating export restrictions to China. Homebuilders rose as new US home construction unexpectedly picked up.

After an “epic risk rally,” Bank of America Corp.’s Michael Hartnett said investors should offload those assets as technical and macroeconomic headwinds are building. “Fade it,” he noted.

The dollar fell and was on course for its biggest monthly drop in a year, with softer-than-expected economic data reinforcing expectations the Fed is done with its tightening cycle and amid bets the US currency has already peaked. Ten-year yields hovered near 4.4%. Oil rebounded after sinking into a bear market.

Traders also kept a close eye on the latest Fedspeak. Fed Vice Chair for Supervision Michael Barr reiterated officials are likely at or near the end of their tightening campaign. Fed Bank of San Francisco President Mary Daly said policymakers aren’t certain inflation is on a path to their 2% target. Her Boston counterpart Susan Collins noted that an increase in labor force participation can ease imbalances between demand and supply and allow for strong growth that doesn’t necessarily fuel inflation.

Stocks Set for Third Straight Up Week | S&P 500 on track for longest weekly rally since July

Global stock funds attracted $23.5 billion in the week through Nov. 15, the second-biggest inflows of the year, according to the BofA note citing data from EPFR Global.

The valuations of high-quality stocks — those with high profitability and low leverage — are currently significantly more expensive compared to both the overall market and their low-quality counterparts, an analysis by Bloomberg Intelligence found.

The other times in the recent past when quality commanded such high valuation premiums were in 2020 and 2008-2009, both times of extreme panic and turmoil in the markets. These periods pushed people to seek safety in high-quality investments, leading to the valuation spikes.

“Quality stocks have historically outperformed in the late stages of the business cycle, including in periods of economic contraction, which should offer portfolio protection if the economy slows more than we expect,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.

This week’s bond-market rally has gone too far, too fast — as rate-cut bets are likely to be priced out for next year, according to Franklin Templeton’s Sonal Desai.

“It smacks much more of fear of missing out,” Desai told Bloomberg Television. “The move down in yields has been too fast.”

Elsewhere, UK retail sales fell unexpectedly in October, adding to the impression that a string of interest-rate hikes designed to beat down inflation is beginning to stymie economic activity. Bundesbank President Joachim Nagel said a cut in European Central Bank interest rates won’t be happening in the near future.

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Corporate Highlights:

  • Amazon.com Inc. is cutting hundreds of employees in the division responsible for its voice-activated Alexa assistant, according to a memo sent to employees.
  • Gap Inc. reported profit that exceeded forecasts and a smaller-than-expected drop in comparable sales.
  • Ross Stores Inc., a discount department store chain, reported comparable sales that beat estimates.
  • Moody’s Investors Service on Thursday lowered its outlook for Tyson Foods Inc. as it expects the largest US meat producer to keep burning cash in the coming 12 to 18 months.
  • Elon Musk’s SpaceX is poised to launch its deep-space Starship rocket system Saturday from South Texas for the second time ever.

Some of the main moves in markets:

Stocks

  • The S&P 500 was little changed as of 10:30 a.m. New York time
  • The Nasdaq 100 fell 0.1%
  • The Dow Jones Industrial Average was little changed
  • The Stoxx Europe 600 rose 1%
  • The MSCI World index rose 0.2%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.3%
  • The euro rose 0.2% to $1.0879
  • The British pound was little changed at $1.2421
  • The Japanese yen rose 0.7% to 149.66 per dollar

Cryptocurrencies

  • Bitcoin rose 0.3% to $36,056.05
  • Ether fell 1.4% to $1,928.69

Bonds

  • The yield on 10-year Treasuries advanced two basis points to 4.46%
  • Germany’s 10-year yield was little changed at 2.59%
  • Britain’s 10-year yield declined five basis points to 4.10%

Commodities

  • West Texas Intermediate crude rose 2.7% to $74.84 a barrel
  • Spot gold was little changed

Gallery

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