The S&P 500 briefly surpassed the 5,500 mark before losing momentum, although it remained above a technical threshold that often indicates an overstretched market. Tech stocks, which have driven the bull market, faced pressure, with the Nasdaq 100 falling after a seven-day rally. Nvidia Corp. and Apple Inc. led the losses among megacaps, while the Dow Jones Industrial Average outperformed.
“Bullish momentum remains intact for the S&P 500 and Nasdaq, but near-term overbought conditions coupled with deteriorating breadth make equities vulnerable to a pullback or correction,” said Craig Johnson of Piper Sandler.
Treasuries fell despite mostly weak economic data, nearing the point of erasing this year’s losses. A $21 billion TIPS auction was strong. Federal Reserve Bank of Minneapolis President Neel Kashkari stated that the central bank aims to return inflation to 2%, a process he estimates will take one to two years.
Wall Street is also preparing for “triple witching,” a quarterly event where derivatives contracts tied to equities, index options, and futures mature, prompting traders to roll over their positions or establish new ones. About $5.5 trillion is set to expire on Friday, according to options platform SpotGamma.
Traders are anticipating a rate cut by the Bank of England in August following dovish signals from policymakers. The Swiss franc led losses in developed-world currencies as the Swiss National Bank reduced borrowing costs. The yen dropped for a sixth consecutive day, increasing the risk of intervention by Japan to support the currency.
Despite the S&P 500 setting 31 new records this year, the gains have been concentrated in a few tech giants. In the past three months, the 10 largest stocks by market capitalization in the index have significantly outperformed the rest, according to Bloomberg Intelligence equity strategist Gillian Wolff.
“Sellers are entering the market, and bulls are dancing on the edge of a knife,” said Andrew Thrasher of Financial Enhancement Group. “Everything is now dependent on pretty much just Nvidia and Apple. It won’t take much to bring this market down.”
Nicholas Bohnsack of Strategas noted that equity valuations have reached the upper end of their historical range, where forward returns are typically less robust for new investments.
“Still, there appears little to halt the domestic bull market – we remain bullish ‘til the bill comes due,” he noted. “The economy, while showing some signs of softening momentum, is generally strong globally. Corporate profit expectations are broadening.”
Stifel, Nicolaus & Co. predicts the S&P 500 could rally close to an additional 10% this year, if past market manias are any guide. However, Barry Bannister of Stifel expects the index to reach the 6,000 mark before the end of 2024, but then fall back to around 4,800 by mid-2026, erasing a fifth of its value.
Ned Davis Research strategist Ed Clissold raised his year-end outlook on the S&P 500 to 5,725, citing a modest pickup in earnings growth and the likelihood of a rate cut by policymakers, setting the stage for further gains in the second half of 2024.
“The outlook is not without potential pitfalls,” Clissold wrote. “High valuations and narrowing leadership leave the market vulnerable to bigger drawdowns should the bullish fundamental/macro backdrop falter.”
Economic data mostly pointed to softness, with new home construction hitting its slowest pace in four years and the Philadelphia Fed Index falling short of estimates. US initial jobless claims were little changed.
A series of weaker-than-expected data points has sent the US version of Citigroup’s Economic Surprise Index to its lowest since August 2022. This gauge measures the difference between actual releases and analyst expectations.
Don Rissmiller of Strategas believes that until employment weakens significantly, there remains fundamental support for the economy, even with pressure on rate-sensitive sectors like housing.
“The US economy still looks robust enough to take an extended rate pause (mixed news is not weak news),” he noted. “We continue to monitor jobless claims closely for any signs that cracks are widening.”
Corporate Highlights:
1.Dell Technologies Inc.’s CEO Michael Dell announced the creation of a “Dell AI factory” for Elon Musk’s startup xAI alongside Nvidia Corp.
2.Hertz Global Holdings Inc. increased the size of a junk-bond sale by a third to $1 billion, aiming to bolster its balance sheet following a misstep on its electric vehicle fleet.
3.A United Airlines Holdings Inc. plane returned to a Connecticut airport after losing part of an engine liner, adding to a series of flight mishaps this year.
4.Kroger Co. executives noted a dip in profit due to pressure in the supermarket operator’s pharmacies and increased promotions.
5.MGM Resorts International plans to offer online betting with live dealers based at two of its Las Vegas resorts, a first for a Strip casino operator.
6.Honeywell International Inc. agreed to buy aerospace and defense company CAES Systems from private equity firm Advent International for $1.9 billion.
7.Gilead Sciences Inc.’s experimental twice-yearly shot prevented 100% of HIV cases in women and adolescent girls in Africa, marking the first successful large trial of this new drug regimen.
8.Vertex Pharmaceuticals Inc. reached a pricing agreement for its cystic fibrosis drugs with the National Health Service in England, ending a long campaign by patients for access to the medicines.
Key events this week:
1.Eurozone S&P Global Manufacturing PMI, S&P Global Services PMI, Friday
2.US existing home sales, Conf. Board leading index, Friday
3.Fed’s Thomas Barkin speaks, Friday
Market Movements:
Stocks:
1.S&P 500 fell 0.3% as of 4 p.m. New York time
2.Nasdaq 100 fell 0.8%
3.Dow Jones Industrial Average rose 0.8%
4.MSCI World Index fell 0.1%
Currencies:
1.Bloomberg Dollar Spot Index rose 0.2%
2.Euro fell 0.4% to $1.0705
3.British pound fell 0.4% to $1.2663
4.Japanese yen fell 0.5% to 158.89 per dollar
Cryptocurrencies:
1.Bitcoin rose 0.3% to $65,027.49
2.Ether fell 0.6% to $3,531.58
Bonds:
1.Yield on 10-year Treasuries advanced three basis points to 4.25%
2.Germany’s 10-year yield advanced three basis points to 2.43%
3.Britain’s 10-year yield declined one basis point to 4.06%
Commodities:
1.West Texas Intermediate crude rose 0.7% to $82.17 a barrel
2.Spot gold rose 1.3% to $2,358.98 an ounce
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