(Bloomberg) — The stock market extended gains this week as big technology companies rose and a strong jobs report boosted corporate earnings expectations.
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Stocks hit all-time highs, with the S&P 500 nearing 5,000 and the Nasdaq 100 rising 1.7% amid bullish forecasts from Meta Platforms Inc. and Amazon.com Inc. Economic optimism has outweighed bets that the Fed will be in no rush to cut interest rates. Two-year Treasury yields jumped 16 basis points to 4.36%. The dollar rose to its highest levels since December.
“Today’s jobs report calls into question the ‘soft landing’ narrative,” said David Donabedian of US bank CIBC Private Wealth. “The January jobs report was very dramatic, implying that there may be no ‘soft landing’.” “The economy is moving forward.”
For Neil Dutta, of Renaissance Macro Research, strong growth in labor productivity means unit labor costs are under control – a good backdrop for the company’s profits. “It’s hard to be too bearish” given this economic resilience, said eToro’s Brett Kenwell. Blue Chip Daily Trend Report’s Larry Tintarelli sees the data as a “very bullish signal for the economy” — adding, “We are buyers of any short-term weakness in stocks.”
“Just as many were surprised by a recession that never appeared in 2023, there is always the possibility that another year will go by without a recession,” said Chris Zaccarelli of the Alliance of Independent Advisors.
Nonfarm payrolls rose by 353,000 last month after upward revisions for the previous two months. The unemployment rate stabilized at 3.7%. Hourly wages accelerated from the previous month, rising by the most since March 2022. Separate data showed a sharp increase in consumer sentiment in the United States.
While signs of a strong economy may continue to bode well for US companies, the data reinforces the view that the Fed will delay the start of interest rate cuts.
“I think we can officially kiss interest rate cuts goodbye in March – and more likely in May,” said Alex McGrath, of NorthEnd Private Wealth.
Federal Reserve Governor Michelle Bowman said she expects inflation to decline further with interest rates remaining at their current level — but noted that it is too early for officials to consider cutting interest rates.
Swaps pointing to the date of the Fed’s March meeting have cut the odds of a quarter-point rate cut in half, to about 15% – while the May contract is no longer fully priced in the cut, which it has been for more than a month.
“A rate cut in March now looks increasingly unlikely,” said Jason Pride of Glenmede. “The most likely path is 2-3 cuts this year starting around the summer.”
Seema Shah of Principal Asset Management says January was not just a strong month for the labor market. The previous months turned out to be stronger than initially thought.
“The dramatic upward surprise for both jobs and wage growth means that a March rate cut should be off the table now, and a May cut is also likely on ice,” she noted.
Following the Fed’s decision on Wednesday, Fed Chairman Jerome Powell said a cut was unlikely to take place at the next meeting in March. He will appear on CBS News’ 60 Minutes on Sunday to discuss inflation risks, expected interest rate cuts and the banking system, among other topics, the network said.
Powell’s response to the Fed’s willingness to cut interest rates in March now seems particularly “timely,” according to Tiffany Wilding of Pacific Investment Management Co.
For Charles Schwab’s Richard Flynn, Friday’s numbers may be another factor delaying the Fed’s first rate cut heading into the summer, but if the economy maintains its comfortable path, that may not be a bad thing.
“What’s the rush?” Asked.
Nationwide’s Mark Hackett said strong market gains remain at almost unprecedented levels – with changing expectations on the Fed’s outlook “unable to break the momentum”.
“Investors who have been sitting on the sidelines are starting to capitulate, which when combined with the return of stock buybacks after earnings season, should act as a tailwind to the markets,” Hackett noted.
Stocks rose on Friday, led by a rally in mega-cap stocks that lifted the market from the bottom.
Shares of Meta, which wowed shareholders with an impressive earnings report, rose 20% to a record high. The increase added $197 billion to its market capitalization, the most value added in a single session, surpassing the $190 billion gain made by Apple Inc. and Amazon.com Inc. In 2022.
The rush into technology stocks resembles the dot-com era, reflecting an assumption that the economy will perform strongly despite tightening monetary policy, according to Bank of America’s Michael Hartnett.
He points out that 75% of investors expect a smooth landing, and 20% expect a no-landing scenario. However, although a soft landing should support a broader range of stocks, the so-called “Big 7” represented 45% of the S&P 500’s returns in January, reflecting a “non-bubble/non-bubble bias.” .
In other corporate news, Apple trimmed its decline as investors looked beyond the deep slump in its China business. Exxon Mobil Corp and Chevron Corp beat earnings expectations as higher-than-expected oil production from shale fields helped cushion the blow from weak crude oil prices. The regional bank gauge rebounded after a two-day rout.
Some key movements in the markets:
Stores
The S&P 500 rose 1.1% as of 4 p.m. New York time
The Nasdaq 100 rose 1.7%.
The Dow Jones Industrial Average rose 0.3%
MSCI World Index rose 0.6%
Currencies
The Bloomberg Dollar Spot Index rose 0.6%.
The euro fell 0.7 percent to $1.0793
The British pound fell 0.8 percent to $1.2637
The Japanese yen fell 1.3% to 148.30 per dollar
Digital currencies
Bitcoin fell 0.3% to $42,945.79
Ethereum fell 0.3% to $2,297.85
Bonds
The yield on the 10-year Treasury note rose 14 basis points to 4.02%.
The yield on German 10-year bonds rose nine basis points to 2.24%.
The UK 10-year bond yield rose 17 basis points to 3.92%.
Goods
West Texas Intermediate crude fell 2.3% to $72.14 a barrel
Gold in spot transactions fell 0.9 percent to $2,036.72 per ounce
This story was produced with assistance from Bloomberg Automation.
–With assistance from Michael McKenzie, Subrat Patnaik, and Carter Johnson.
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