Tech Giants Roar as Nasdaq 100 Hits 22-Month High: Markets Wrap
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Shortly after the auction results, benchmark 10-year yields reversed course and fell to about 4.4%. The S&P 500 extended gains toward its highest levels since August, and the tech-heavy Nasdaq 100 was on track for a 22-month high. Both Nvidia and Microsoft Corp. have climbed to new highs amid a revival in artificial intelligence display. The dollar is heading to record its lowest level in 11 weeks.
“We remain positive on stocks and expect to extend the gains seen recently as the U.S. economy continues to expand sustainably, albeit at a modest pace,” said John Stoltzfus, chief investment strategist at Oppenheimer Asset Management.
Traders were also focusing their attention on Treasury bond sales, especially after the United States recently offered an unusually large premium for selling 30-year securities. These auctions are also having an increasing influence on stocks, underscoring how the path of interest rates has dominated markets recently. The 20-year bond auction yielded 4.78%, compared to the pre-sale level of 4.79%.
After a hiatus of more than three decades, the Treasury Department revived 20-year bonds in May 2020. Before Monday’s auction, it had never sold securities during Thanksgiving week. They have been trading at a discount to other long-term maturities – causing a degree of pre-sale concerns.
“Treasuries offer very attractive yields,” according to Principal Asset Management. “Although the potential for capital appreciation may be limited in the face of an impending economic slowdown, the fixed income security of Treasuries makes it a strong option for investors who prioritize stability heading into an uncertain 2024.”
For Peter Boockvar, author of the Boock report, the auction was actually somewhat mixed, with traders more focused on the low yield compared to the price immediately before it — rather than the below-average bid to cover.
Given its somewhat “orphan condition” and small size, he noted, “I don’t know what I’m going to do with the auction in terms of letters.”
Read: Fed’s Barkin Says Inflation Job Not Complete; Growth fell back into trend
As earnings season approaches, investors will also be looking to results from a range of retailers and technology companies.
Nvidia’s quarterly results on Tuesday may exceed investors’ high expectations thanks to strong demand for generative artificial intelligence. Best Buy Co. is set to announce and Nordstrom Inc. and Lowe’s Cos. reported lower sales, reflecting a decline in consumer discretionary spending.
The S&P 500 is set to rise toward all-time highs early next year, retreat mid-year and then return toward the highs, according to strategists at Societe Generale SA.
“The S&P 500 should be in buy territory on the dip, with key earnings indicators continuing to improve,” Manish Kabra wrote in his annual US stock outlook for clients. “However, the journey to the end of the year should be far from smooth,” he added, pointing to the economic downturn, the looming credit selloff, and ongoing quantitative tightening that traders still need to contend with.
For some market watchers, the S&P 500’s rise looks increasingly unsustainable. Strategists tracked by Bloomberg on average expected in mid-October that the gauge would end the year at 4,370 — but it is already trading above 4,500.
Investors who believe “Santa has arrived early” to markets may want to consider put option spreads through the end of the year on companies like Expedia Group Inc., Carnival Corp., Nvidia and Intel Corp., RBC Capital Markets derivatives strategist Amy Wu Silverman. books.
To return to its previous peak, the S&P 500 needs more than just the earnings recovery that appears to be underway — interest rate cuts are also necessary. That’s according to Bloomberg Intelligence’s fair value model for the US stock index, which says the 2024 consensus target price on the gauge looks too high.
The typical post-recession recovery is expected to come after earnings on the back of persistently rising interest rates. This would likely limit the S&P 500’s potential rise to levels at which the gauge currently trades, even in a best-case scenario, based on forecasts by BI equity strategists Jenna Martin-Adams and Michael Kasper.
“The market as a whole has not yet surpassed the highs of early 2022, reflecting the push and pull between optimism about a Fed-engineered soft landing and potential underestimation of economic headwinds,” said Jason Pryde and Michael Reynolds of Glenmede.
Meanwhile, some of Wall Street’s top strategists are divided when it comes to US corporate earnings forecasts next year. While Citigroup’s Scott Krohnert expects earnings to hold up even if the economy slides into recession, Mislav Matejka, a strategist at JPMorgan Chase & Co., says diminishing pricing power would hamper overall revenue and margins regardless of decades of growth.
The Citigroup index shows that cuts in US earnings estimates have outnumbered upgrades for nine straight weeks – the longest streak since February. Kronert expects analyst estimates for 2024 to decline next quarter — but that will only lower the bar for companies, he said.
Read: Five key charts to watch in global commodities this week
With the dollar’s rise stalling, it will take some strong data from the real sector to challenge the Fed’s current narrative, according to Win Thien, global head of currency strategy at Brown Brothers Harriman & Co.
“The US economy continues to grow above trend even as the rest of the world slides into recession, while price pressures remain persistent enough that the Fed will not be able to cut interest rates as soon and as much as the market thinks,” Thain noted. . “However, the dollar remains weak until we see a shift in market sentiment and expectations.”
For Solita Marcelli of UBS Global Wealth Management, the dollar should remain stable in the first months of 2024 due to strong economic growth and higher interest rates compared to the rest of the world.
In the world of commodities, oil rose as traders waited to see if the OPEC+ alliance led by Saudi Arabia would intervene to support prices. The spot price of gold fell after a weekly advance of more than 2%. Copper rose as industrial commodities benefited from growing optimism about an end to interest rate hikes by the Federal Reserve.
The company’s most prominent features:
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Nearly all of OpenAI’s employees have threatened to resign and follow ousted leader Sam Altman to work for the company’s largest investor, Microsoft, unless the current board resigns, making the future of the high-profile AI startup increasingly uncertain.
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Boeing rose after Deutsche Bank AG upgraded shares to buy as plane deliveries began to accelerate.
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NRG Energy Inc. CEO Mauricio Gutierrez was replaced following a dispute over the company’s acquisition of Vivint Smart Home Inc. Valued at $2.8 billion – a deal that Elliott Investment Management LP called the “worst deal” of the decade in the energy and utilities sector.
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Bayer AG is down the most in its history after suffering major setbacks in the courtroom and in drug development, increasing pressure on its new leader to devise a turnaround plan.
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Bristol-Myers Squibb and 2seventy Bio Inc. fell. After the FDA said it would hold an advisory committee meeting to review data on an application for a cancer drug, and that a decision on the application would not be made by the target action date of December 16.
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C3.ai Inc., a software maker that is capitalizing on interest in artificial intelligence, cut headcount last week, citing employee performance and the need to save costs.
Main events this week:
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European Central Bank President Christine Lagarde and German Finance Minister Christian Lindner speak on Tuesday
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Existing home sales in the United States, Tuesday
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The Federal Open Market Committee releases minutes from its November 1 policy meeting on Tuesday
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Nvidia earnings on Tuesday
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Canada updates the government’s fiscal and economic outlook, Tuesday
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Consumer confidence in the euro zone, Wednesday
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US Initial Jobless Claims, University of Michigan Consumer Confidence, Durable Goods, Wednesday
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Bank of Canada Governor Tiff Macklem speaks on Wednesday
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Global PMI for Eurozone manufacturing and services, Thursday
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Thanksgiving Holiday – US markets closed – Thursday
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The European Central Bank publishes its October policy meeting account on Thursday
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Germany Ifo Business Climate, Friday
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US S&P Global Manufacturing PMI, Friday
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Black Friday, the traditional start of the holiday shopping season in the United States
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Christine Lagarde of the European Central Bank speaks on Friday
Some key movements in the markets:
Stores
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The S&P 500 rose 0.9% as of 3:39 PM New York time
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The Nasdaq 100 rose 1.3%.
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The Dow Jones Industrial Average rose 0.8%
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MSCI World Index rose 0.8%
Currencies
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The Bloomberg Dollar Spot Index fell 0.4%.
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The euro rose 0.3 percent to $1.0946
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The British pound rose 0.4 percent to $1.2512
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The Japanese yen rose 0.9 percent to 148.33 yen to the dollar
Digital currencies
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Bitcoin rose 1.3% to $37,504.68
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Ethereum rose 2.6% to $2,035.08
Bonds
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The yield on the 10-year Treasury note fell 2 basis points to 4.42%.
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The yield on 10-year German bonds rose two basis points to 2.61%.
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The yield on British 10-year bonds rose two basis points to 4.12%.
Goods
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West Texas Intermediate crude rose 2.3% to $77.60 a barrel
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Gold in spot transactions fell 0.2 percent to $1,977.82 per ounce
This story was produced with assistance from Bloomberg Automation.
-With assistance from Elizabeth Stanton, Alexandra Semenova, Sagarika Jaisinghani, Edward Bolingbroke, Vassilis Karamanis, Carter Johnson, Yi Xie, Matthew Burgess, Tasya Sibahotar, Robert Brand, and Jeran Wittenstein.
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