(Bloomberg) — A stellar quarter for stocks is ending with a sense of caution, with traders gearing up for key inflation data after the latest Fedspeak reinforced bets policymakers will be in no rush to cut interest rates.
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The relentless rally that added $4 trillion to US equity values this year hit a wall after Federal Reserve Governor Christopher Waller said he wants to see “at least a couple months of better inflation data” before cutting rates. Not even solid economic readings were able to move the needle ahead of the release of the Fed’s preferred inflation gauge and Jerome Powell’s remarks Friday — when markets will be closed.
“When you title a speech ‘There’s Still No Rush’, you have a point to make,” said Peter Boockvar, author of the Boock Report. “Waller joins voting member Raphael Bostic in wanting to wait — and only likely expecting one-two cuts this year.”
The S&P 500 wavered around 5,250 after closing at a record. Treasury two-year yields rose five basis points to 4.61%. The bond market will close at 2 p.m. New York time Thursday. Swaps traders trimmed wagers on Fed policy easing, with contracts now showing an implied probability of about 60% for a June cut.
“Right or wrong, expectations for a June rate cut probably won’t shift unless inflation continues to rise and the labor market appears to be a major contributor to the increase,” said Chris Larkin at E*Trade from Morgan Stanley.
In economic data, the government’s two main measures of US activity — gross domestic product and consumer spending — posted strong advances at the end of last year. Consumer sentiment rose markedly toward the end of March, supported by strong stock-market gains and expectations that inflation will continue to ease. Pending sales of previously-owned homes in the US recovered.
To Chris Zaccarelli at Independent Advisor Alliance, a solid economy — driven by a resilient consumer — sets the table for another strong earnings season, which will kick off next month.
“For those that are still holding onto the idea that the much-forecasted 2023 recession is right around the corner, they’ve missed an excellent 15 (if not 17) months in the stock market,” Zaccarelli noted.
The S&P 500 will end the year at 5,300 as the consensus real US GDP forecast has climbed in a positive sign for stocks, according to RBC Capital Markets’ Lori Calvasina, who raised her target from 5,150.
“We think the market’s view of where economic fundamentals are heading, rather than any one economist’s or strategist’s view, is what ultimately drives stock market pricing.”
The S&P 500 is blowing past milestones this year, even as its $4 trillion rally leads some to worry about the market running too hot. But now a technical indicator that has an “undefeated” record suggests the momentum isn’t going to fade any time soon.
The relative strength index of the benchmark gauge — which measures price momentum — has closed above a value of 50 for 100 straight trading sessions as of Wednesday’s close, data compiled by SentimenTrader showed. After a similar show of strength in its price momentum, the S&P 500 was higher every time over the ensuing two, three, six, and twelve months periods, the analysis found.
The valuation of the equal-weighted S&P 500 has increased to a price-to-earnings ratio of 17 — but the index has shown in the past that it can continue to rise even when trading above fair value, according to Goldman Sachs Group Inc. strategists led by Ryan Hammond.
“For investors concerned about overvaluation or risks to the economic outlook, our options strategists note that downside protection appears attractively priced,” the strategists wrote.
The relentless bull run sent the S&P 500 up 10% this year — putting the index on pace for two straight quarters of double-digit percentage gains.
Since World War II, such a feat would be followed by mild weakness in the following month — with the gauge climbing by an average of 12.27% one year later, according to data compiled by Bespoke Investment Group.
Corporate Highlights:
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Home Depot Inc. said it would buy building-products distributor SRS Distribution Inc. for about $18.25 billion in a bid to bolster the company’s professional services business.
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Walgreens Boots Alliance Inc. narrowed its fiscal 2024 guidance even as the drugstore chain beat Wall Street’s estimates for second-quarter profit and revenue.
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Palantir Technologies Inc. was cut to sell at Monness, Crespi, Hardt & Co., which cited “egregiously rich” valuation.
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Estee Lauder Cos. was raised to buy at Bank of America Corp., which said the company’s earnings have now bottomed.
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Country Garden Holdings Co., once China’s top property developer, warned it will miss its deadline for reporting annual results as more information is needed for appropriate accounting.
Key events this week:
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Good Friday. Exchanges closed in US and many other countries in observance of holiday. US federal government is open.
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US personal income and spending, PCE deflator, Friday
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San Francisco Fed President Mary Daly speaks, Friday
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Fed Chair Jerome Powell speaks, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 was little changed as of 10:10 a.m. New York time
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The Nasdaq 100 was little changed
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The Dow Jones Industrial Average was little changed
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The Stoxx Europe 600 rose 0.2%
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The MSCI World index was little changed
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro fell 0.2% to $1.0808
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The British pound was little changed at $1.2641
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The Japanese yen was little changed at 151.30 per dollar
Cryptocurrencies
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Bitcoin rose 3% to $70,918.45
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Ether rose 2.1% to $3,585.98
Bonds
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The yield on 10-year Treasuries advanced one basis point to 4.20%
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Germany’s 10-year yield advanced two basis points to 2.31%
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Britain’s 10-year yield was little changed at 3.94%
Commodities
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West Texas Intermediate crude rose 1.2% to $82.33 a barrel
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Spot gold rose 0.5% to $2,205.62 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Esha Dey.
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