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Stock Rally Stalls at Start of Data-Packed Week

Stock Rally Stalls at Start of Data-Packed Week
Flags outside the Exchange Square Complex, which houses the Hong Kong Stock Exchange, in Hong Kong, China, on Tuesday, 23 January 2024.

Stocks, bonds and the dollar saw small moves as traders braced for a barrage of economic data and remarks from Federal Reserve speakers that will help shape the outlook for interest rates.

Stocks, bonds and the dollar saw small moves as traders braced for a barrage of economic data and remarks from Federal Reserve speakers that will help shape the outlook for interest rates.

The economy is back to the forefront this week, with the Fed’s favored inflation gauge due Thursday expected to show the biggest advance in a year. The core personal consumption expenditures price index is seen highlighting the bumpy path the central bank faces in achieving its 2% target. That means the data should also validate recent Fedspeak underscoring officials are in no rush to ease policy.

“Economic data will return to center stage,” said Chris Larkin at E*Trade from Morgan Stanley. “After hotter-than-expected CPI and PPI readings earlier this month, more people may be looking to the PCE to for insight into the reinflation threat, and how it may influence the Fed’s timing of rate cuts.”

Traders will also keep a close eye on how the bond market will manage to absorb heavy Treasury and corporate issuance amid month-end positioning. The US investment-grade bond market is gearing up for robust issuance, following the biggest sales spree in almost two years. Syndicates are forecasting about $35 billion in fresh bond sales this week. That means the February record of $150 billion — set last year — is within reach as companies race to exploit robust investor demand.

The S&P 500 hovered near 5,100. Treasury 10-year yields were little changed at 4.26%. The dollar fluctuated.

Fed's Preferred Inflation Gauge Expected to Accelerate | Core PCE seen rising 0.4% in January, taking annualized metrics above Fed's target

Stock markets have room to extend gains beyond record highs if the economic outlook remains upbeat and investors pour money into recent laggards, according to Goldman Sachs Group Inc. strategists.

The S&P 500’s run to an all-time peak has left investor positioning “extremely” concentrated in the so-called Magnificent Seven, the team led by Cecilia Mariotti said. While that does create the risk of a pullback, there’s also “space for bullish sentiment and positioning to be further supported, especially if we start seeing a more meaningful rotation out of cash and into risky assets and laggards within equities,” the strategists wrote.

“Now, as a result of the artificial intelligence-induced surge, investors wonder if the market will top out or broaden out,” said Sam Stovall at CFRA. “We think it will broaden out – eventually, but not before investors feel assured that the Fed will not postpone the first rate cut beyond the second quarter of this year.”

Meantime, HSBC strategists upgraded their view on global stocks to neutral from underweight, saying their decision to downgrade in January was “wrong” as they failed to predict the rally in artificial-intelligence stocks.

Listen to the Big Take podcast on iHeart, Apple Podcasts, Spotify and the Bloomberg Terminal. Read the transcript.

“Our message to investors is to continue to focus on the sectors and companies that are seeing growth,” said Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management. “Tech, healthcare and selected discretionary names are seeing strong earnings growth and that is where we want to focus. This can also be outside the US as well.

US Market Breadth Is Weakest Since 2009 | S&P 500 relative to the equal-weight index is near levels last seen in 2009

To Solita Marcelli at UBS Global Wealth Management, investors looking to boost portfolio diversification have a broad range of opportunities outside of US large-caps.

“For example, we have identified high-quality growth stocks in Europe that, in our estimates, offer similar earnings growth prospects as the ‘Magnificent Seven’ in the US, while India is among our most preferred region within emerging markets. We also see value in US small-caps and small- and mid-caps in Europe,” Marcelli noted.

A number of forecasters have raised their targets for equity benchmarks due to an optimistic outlook for corporate earnings, but profit margins might actually be peaking, according to JPMorgan Chase & Co. strategists led by Mislav Matejka write margins are currently elevated by historical standards.

Muted corporate demand for software and hardware, along with cost-cutting efforts to protect margins, will set the tone for report cards from Salesforce Inc., Zoom Video Communications Inc., Dell Technologies Inc. and HP Inc. this week.

 

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Corporate Highlights:

  • Warren Buffett’s Berkshire Hathaway Inc. posted an increase in operating earnings as higher interest rates and fewer catastrophes benefited the conglomerate’s insurance business.
  • US aluminum producer Alcoa Corp. made a $2.2 billion offer to acquire its Australian joint-venture partner Alumina Ltd. to consolidate ownership of key upstream assets with long-term demand for the metal forecast to rise.
  • Microsoft Corp., under mounting political scrutiny globally for its deep ties to OpenAI, has cut a deal with the startup’s primary competition in Europe. On Monday, the French company Mistral AI announced a “strategic partnership” with the US software giant.
  • Intuitive Machines Inc. sank after the spacecraft company said its lander, which successfully touched down on the moon last week, likely landed on its side.

Key Events This Week:

  • BOE Governor Andrew Bailey speaks, Tuesday
  • US Conf. Board consumer confidence, durable goods, Tuesday
  • Michigan Republican and Democratic presidential primaries, Tuesday
  • Reserve Bank of New Zealand policy decision, Wednesday
  • Eurozone economic confidence, consumer confidence, Wednesday
  • US wholesale inventories, GDP, Wednesday
  • Fed’s Raphael Bostic, Susan Collins and John Williams speak, Wednesday
  • G-20 finance ministers and central bank chiefs meet in Sao Paulo, Wednesday through Thursday
  • Germany CPI, unemployment, Thursday
  • US consumer income, PCE deflator, initial jobless claims, Thursday
  • Fed’s Austan Goolsbee, Raphael Bostic and Loretta Mester speak, Thursday
  • China official PMI, Caixin manufacturing PMI, Friday
  • Eurozone S&P Global Manufacturing PMI, CPI, unemployment, Friday
  • BOE chief economist Huw Pill speaks, Friday
  • US construction spending, ISM Manufacturing, University of Michigan consumer sentiment, Friday
  • Fed’s Raphael Bostic and Mary Daly speak, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 was little changed as of 9:55 a.m. New York time
  • The Nasdaq 100 was little changed
  • The Dow Jones Industrial Average rose 0.2%
  • The Stoxx Europe 600 fell 0.2%
  • The MSCI World index was little changed

Currencies

  • The Bloomberg Dollar Spot Index was little changed
  • The euro rose 0.2% to $1.0845
  • The British pound was little changed at $1.2682
  • The Japanese yen fell 0.1% to 150.73 per dollar

Cryptocurrencies

  • Bitcoin fell 0.2% to $51,683.26
  • Ether fell 0.2% to $3,102.04

Bonds

  • The yield on 10-year Treasuries advanced one basis point to 4.26%
  • Germany’s 10-year yield advanced five basis points to 2.41%
  • Britain’s 10-year yield advanced 10 basis points to 4.13%

Commodities

  • West Texas Intermediate crude rose 0.4% to $76.78 a barrel
  • Spot gold fell 0.4% to $2,027.99 an ounce

Gallery

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