(Bloomberg) — Stocks struggled to find solid ground as expectations that the U.S. Federal Reserve would cut interest rates in 2024 neared record highs.
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With only a few days left until the end of the year, the S&P 500 was reeling, even though volume was on the decline. Some traders cited the old Wall Street adage of “never short a slow market,” but amid warnings against overbought levels and the Fed’s overly dovish bets, the reality is Concerns have surfaced regarding the confirmation of
Bets that the Fed will end its aggressive rate hike cycle fueled gains in both stocks and bonds. The S&P 500 is near all-time highs. This is a remarkable feat that both the Nasdaq 100 and the Dow Jones Industrial Average have accomplished recently, and it’s fueling a debate about whether investors should worry or celebrate.
“Perhaps the most important question is what did the S&P 500 do after it crawled out of the hole,” said Ed Clissold of Ned Davis Research. “Did the rally to new highs leave the market overbought and require a correction? Or was it a breakout into a new upward trend? History is on the side of the latter. ”
Clissold noted that the S&P 500 index continues to outperform its long-term average after one, three, six, and 12 months. The one-month return has not been very strong, suggesting short-term overbought conditions in some cases. One year later, Gage was up 13 of 14 times, a median of 13.4%.
The S&P 500 was about 0.5% off its all-time high of 4,796.56. The yield on 10-year government bonds fell 10 basis points to 3.80% after the sale of 5-year bonds stopped and a lower yield was priced in than the yield at issue. That followed a surprisingly strong two-year bond auction on Tuesday, with buyers looking to lock in higher yields before the Fed begins easing policy.
Traders are increasingly betting on a rate cut as early as March 2024, according to Fed swap prices. That view has gained momentum since policymakers updated their outlook this month, saying they now expect to cut rates at a stronger pace than previously predicted.
“The Santa Rally satisfied a lot of investors,” said Tom Essay, a former Merrill Lynch trader and founder of the Sevens Report newsletter. “As 2024 begins, the market will need to find new positive catalysts to propel the S&P 500 to all-time highs.”
José Torres of Interactive Brokers said the Fed’s potential to fight inflation is growing, as data released in the coming months will likely persuade officials to delay interest rate cuts until May at the earliest. He said the optimism that the country had won was overblown.
“The stock market is overly optimistic about the amount of rate cuts expected in 2024,” said Michael Landsberg of Landsberg Bennett Private Wealth Management. “Unless something unforeseen happens in the economy that warrants lower rates, we expect three rate cuts in 2024 starting in July, but not sooner,” he said. .”
Now, for many traders, the soft-land scenario that investors expect next year could signal further gains in U.S. stocks. But it also dims the prospects for another big outperformance by the dominant tech giants in 2023.
Thanks in part to tailwinds from the artificial intelligence boom, the group was up nearly 100% through mid-July, compared with about 20% for the S&P 500. But as confidence in the economy grew after the Fed’s July interest rate hike, investors are now seeing the tech giant’s gains slow even further at the end of this cycle. Since the end of July, this group is up about 7%, while the broader market is up about 4%.
In corporate news, Apple has won a court ruling that suspends a U.S. ban on its latest smartwatch, giving the company a reprieve from a patent dispute that took the device off the market and threatened its estimated $17 billion business. gave to. The New York Times has sued Microsoft and OpenAI for using its content to develop artificial intelligence services, a sign of the increasingly fraught relationship between media and technology that could upend the news industry. .
Traders were also keeping an eye on the latest geopolitical developments.
Oil prices retreated from their highest close in nearly a month as weakness in key technical indicators became apparent and price support from the attack on the Red Sea was shaken. Shipping giant Hapag-Lloyd said it would keep its ships out of the Red Sea even after a US-led task force was set up to protect the vital trade route from militant attacks.
Elsewhere, Bitcoin rallied amid fresh speculation that U.S. securities regulators are close to approving an exchange-traded fund that invests directly in the largest token.
This week’s main events:
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Japan’s industrial production, retail sales, Thursday
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U.S. wholesale inventories, new unemployment claims, Thursday
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House prices across the UK, Friday
The main movements in the market are:
stock
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As of 1:12 p.m. New York time, the S&P 500 was up 0.2%.
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Nasdaq 100 rose 0.2%
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The Dow Jones Industrial Average rose 0.3%.
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MSCI World Index rose 0.6%
currency
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The Bloomberg Dollar Spot Index fell 0.4%.
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The euro rose 0.6% to $1.1103.
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Sterling rose 0.5% to $1.2793.
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The Japanese yen rose 0.3% to 142.02 yen to the dollar.
cryptocurrency
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Bitcoin rises 1.7% to $43,054.2
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Ether rose 5.4% to $2,344.16
bond
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The 10-year Treasury yield fell 10 basis points to 3.80%.
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Germany’s 10-year bond yield fell 8 basis points to 1.90%.
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UK 10-year bond yields fell 7 basis points to 3.44%.
merchandise
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West Texas Intermediate crude oil fell 1.5% to $74.42 a barrel.
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Spot gold rose 0.7% to $2,083.21 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Richard Henderson, Winnie Hsu, Robert Brand, Krystof Chamonikolas, Felice Maranz, Elena Popina, and Carmen Reinicke.
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