(Bloomberg) — Stocks struggled to remain higher as concerns about an overstretched market offset encouraging economic signals that the Federal Reserve will be able to engineer a soft landing.
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The S&P 500 fluctuated near a record. Losses in some megacaps weighed on trading, with Tesla Inc. down more than 10% after Elon Musk’s pitch for investors to look past slower sales growth fell flat. Boeing Co. also got hit as the head of American Airlines Group Inc. called out the planemaker over a series of quality lapses. International Business Machines Corp. soared on a positive outlook.
“The prevailing trend is undeniably bullish, and the markets are currently adhering to a ‘buy-the-dip’ mentality, at least for the time being,” said Fawad Razaqzada at City Index and Forex.com. “However, there are signs that the rally may be stretching thin at these levels. So, there is the potential for some profit-taking around current levels.”
Treasury 10-year yields dropped five basis points to 4.12%. Swap contracts continued to fully price in a Fed reduction in May, while boosting bets on total cuts this year to around 140 basis points. The euro fell as President Christine Lagarde’s affirmation the European Central Bank may begin lowering rates from around mid-2024 was taken as a sign that earlier moves are in play.
Stronger-than-estimated US gross domestic product figures defy gloomy forecasts for a recession, bolstering the outlook for Corporate America. While such strength implies policymakers would be in no rush to cut rates in the first quarter, a closely watched measure of underlying inflation coming in line with the Fed’s 2% target was seen by many as an encouraging signal.
“There are no recession concerns here, and to make matters even better, we don’t see any accompanying blowout growth in prices that are used in the GDP calculation,” said Charles Hepworth, investment director at GAM Investments. “Stronger growth without inflation is what everyone wants.”
Rob Swanke at Commonwealth Financial Network says the data should provide enough ammo for Fed officials to maintain a dovish stance — even if they keep rates where they are. To Callie Cox at eToro, while a recession isn’t out of the question, it looks like the Fed is achieving a soft landing. David Russell at TradeStation says Fed Chair Jerome Powell “can give himself a pat on the back as Goldilocks takes over.”
“It is hard to argue that the economy isn’t strong,” said Chris Zaccarelli at Independent Advisor Alliance. “The stock market will continue to rally as long as the economy stays out of recession and consumers continue to spend – and that is even without the Fed cutting rates. However, if the Fed starts cutting rates, that will be an additional tailwind to this market, which continues to surprise to the upside.”
With only a few days left for the end of January, the S&P 500 has already blown past the Wall Street consensus over where the index will finish the year. On Wednesday, the gauge surpassed 4,867, the average level where forecasters in a Bloomberg survey pegged it 11 months from now.
With the US stock market at a record, the obvious question for many investors right now is how much firepower is left in the rally that began last year. Whenever the S&P 500 has climbed from a bear market to new heights, returns in the subsequent six and 12 months have been handily above average, Bloomberg Intelligence data going back to 1950 showed.
BI’s analysis of market performance after the US stock benchmark hit a fresh high found the median forward six-month return was roughly 9.2%, above the median 6.3% return for all half-year periods going back more than 70 years. The same pattern is seen in forward 12-month performance, with median returns at 15% after a new all-time high versus just 13% in overlapping yearlong time frames.
Elsewhere, oil rose to the highest in eight weeks, propelled by falling US inventories, Chinese stimulus and an attack on a Russian refinery.
Corporate Highlights:
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Alphabet Inc., Amazon.com Inc. and Microsoft Corp. must provide information to the US Federal Trade Commission on their investments and partnerships with artificial intelligence startups Anthropic PBC and OpenAI Inc. as part of an agency study announced Thursday.
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Apple Inc. is embarking on a historic overhaul of its iOS, Safari and App Store offerings in the European Union, aiming to placate regulators set to impose tough new antitrust rules.
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Microsoft Corp. will lay off 1,900 people across its video-game divisions including at Activision Blizzard, which it purchased for $69 billion in an acquisition that closed late last year.
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LVMH sales rose at the end of last year as wealthy shoppers treated themselves to the group’s pricey handbags and Champagne, a sign of resilience at the world’s largest luxury conglomerate.
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American Airlines Group Inc. expects profit this year to beat Wall Street’s estimates as it benefits from strength in demand for international flights and improved operating performance.
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Southwest Airlines Co. again trimmed growth plans for this quarter in response to rising costs and an industrywide glut of flights that’s pulling down fares.
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Alaska Air Group Inc. expects slower growth this year and a financial hit of $150 million after a midair accident led to the grounding of a portion of its Boeing Co. 737 planes.
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Private Medicare plans that drove years of growth for US health insurers are getting less profitable and may cost seniors more money, Humana Inc.’s results showed, sending shares down across the sector.
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PayPal Holdings Inc. rolled out several product enhancements that failed to stem pessimism about the payments firm’s earnings prospects.
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Comcast Corp. reported earnings and revenue that beat analysts’ estimates as broadband customers spent more on pricier services.
Key events this week:
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Japan Tokyo CPI, Friday
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US personal income & spending, Friday
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Bank of Japan issues minutes of policy meeting, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 rose 0.1% as of 2:42 p.m. New York time
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The Nasdaq 100 fell 0.2%
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The Dow Jones Industrial Average rose 0.2%
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The MSCI World index was little changed
Currencies
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The Bloomberg Dollar Spot Index rose 0.1%
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The euro fell 0.5% to $1.0833
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The British pound fell 0.2% to $1.2698
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The Japanese yen fell 0.2% to 147.80 per dollar
Cryptocurrencies
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Bitcoin rose 0.4% to $39,935.42
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Ether rose 0.2% to $2,220.06
Bonds
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The yield on 10-year Treasuries declined five basis points to 4.12%
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Germany’s 10-year yield declined five basis points to 2.29%
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Britain’s 10-year yield declined three basis points to 3.98%
Commodities
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West Texas Intermediate crude rose 3.1% to $77.41 a barrel
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Spot gold rose 0.2% to $2,017.61 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Alexandra Semenova, Rheaa Rao and Liz Capo McCormick.
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