Traders work on the floor of the New York Stock Exchange (NYSE) on January 19, 2024 in New York City, USA.
Brendan McDiarmid | Reuters
Instead, what took center stage was a series of positive developments in Big Tech, with the economy doing significantly better, inflation receding, and better than expected the market had to endure.
“If investors are looking for reasons to be negative, they’re hard to find,” said Mitchell Goldberg, president of financial advisory firm ClientFirst Strategies. “The 24-hour news cycle is very intense. But the reality is that a lot of it is noise, and a lot of it has nothing to do with the economy or personal finance. There is information overload right now. .But when you break it down, you look at things objectively and say, “What’s not to like about the statistics that are coming out?”
While dealing with various headwinds and tailwinds, the market is moving toward its highest closing price. In fact, the S&P 500 broke through to an intraday high on Friday, and the momentum built continued through the end of 2023.
Big technology companies are leading the way. Juniper Networks, Nvidia, and Advanced Micro Devices are three of the S&P 500’s biggest sector gainers this year, due in part to enthusiasm for generative artificial intelligence technology.
At the same time, economic indicators other than manufacturing and housing were mostly steady, especially those related to the labor market, which is considered to be indestructible. The number of new jobless claims last week fell to the lowest level since September 2022, amid growing expectations that rising interest rates pose a threat to continued job growth.
Comments from multiple Fed officials, along with a tight labor market, are taking away some of the momentum from market expectations for rate cuts this year.
A week ago, the market looked almost certain that the Fed would start cutting interest rates in March and continue to do so by another six quarter points for the rest of the year, but prices changed on Friday. According to the paper, traders in the federal funds futures market currently see a less than 50% chance of a March rate cut, increasing the likelihood of five rate cuts this year. CME Group data.
However, the market remained positive despite the bleak outlook for policy easing.
“When it comes to Fed rate hikes, it confirms that as long as they don’t break something, the market will be fine,” Goldberg said. “I don’t think anything is actually broken. There’s no subprime debt crisis, there’s no mortgage crisis. … There were a lot of big, bold predictions, but one by one they didn’t come true, or just the next year. It will simply be postponed.”
In fact, the market has fared well since the Fed started raising interest rates, equating to 5.25 percentage points 11 times during the most aggressive cycle dating back to the early 1980s. Since its initial rise on March 17, 2022, the S&P 500 index has risen more than 8%. Since the last rate hike on July 27, 2023, the large-cap index has risen more than 5.5%.
The market is now betting that the Fed will start cutting rates, perhaps with some less enthusiasm.
Michael Hartnett, an investment strategist at Bank of America, said in a note to clients Thursday that investors are “going bullish where the pack is going,” which means lower federal funds rates. said.
Combining a tough economy, a more accommodative Fed, and a strong tech sector is creating a winning formula.
“Big 7 names [in tech] It has become like a chimera. “They speak to two very different economic contexts,” said Quincy Crosby, chief global strategist at LPL Financial. “It’s true.” Another thing he says is that AI is a special catalyst for AI because the market is focused on business development through mega-technology and business innovation in generative AI. And what you’re seeing now, and what companies are reporting, is that monetization. ”
Mr. Crosby specifically cited the outstanding earnings from Taiwan Semiconductor as a leader in this field and the promise of disruptive technology. “That’s what the market has been waiting for,” she says.
Then there’s the economy.
Spending power could rise further this year as the labor market endures inflationary pressures and rising interest rates. Consumer sentiment has reached its most optimistic level since July 2021, according to a University of Michigan survey released Friday.
“We’re always looking for the first signals of a recession. They come directly from the labor market. What we’re seeing is that the economic support is helping to sustain consumer spending, which accounts for 70% of the economy. That’s true,” Crosby said. . “That’s what the market appreciates.”
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