(Bloomberg) -- Treasuries struggled to gain traction despite a strong $25 billion sale of long-term bonds that capped a week of ramped-up issuance sizes. Stocks hovered near records.
US yields rose even after the 30-year auction reduced concerns about an oversupply. As it's typical for insurance companies and pension funds to be the main players this far out on the curve, this auction is less helpful in gleaning market messaging, according to Peter Boockvar, author of the Boock Report.
"Very strong 30-year auction — stops well through," said Andrew Brenner at NatAlliance Securities. "There is some talk that tomorrow's CPI revisions could throw cold water on the recent good inflation numbers, but this is a wonky number. We think the next move comes off the CPI number next Tuesday."
Indeed, investors are also positioning for Friday's consumer-price index revisions because of what happened a year ago: the update was significant enough to cast doubt on overall inflation progress.
In economic news, US initial jobless claims fell for the first time in three weeks, adding to evidence of a still strong labor market and giving credence to the recent cautious rhetoric from central bank speakers. Federal Reserve Bank of Richmond President Thomas Barkin was the latest to reiterate policymakers have time to be patient about the timing of rate cuts.
Equities fluctuated after the S&P 500 came very close to hitting 5,000 for the first time — in a rally that was once again driven by a narrower group of shares. As the earnings season rolled in, Walt Disney Co. and Arm Holdings Plc jumped on upbeat outlooks, while PayPal Holdings Inc. sank on an underwhelming forecast. Treasury 10-year yields rose three basis points to 4.15%. Bitcoin hovered near $45,000. Oil climbed after Israeli Prime Minister Benjamin Netanyahu's dismissal of a potential cease-fire in the Israel-Hamas war.
To Larry Tentarelli at Blue Chip Daily Trend Report, a solid jobs market and a resilient consumer continue to bode well for the economy and should push back on immediate recession concerns. He's betting the Fed will be able to cut rates in either May or June. Chris Larkin at E*Trade from Morgan Stanley says the next few inflation reports may determine whether stocks will be able to keep setting new records in the near term.
"We remain cautious," said Dan Wantrobski at Janney Montgomery Scott. "On this front, we note narrowing of breadth, ongoing divergences in momentum, overbought conditions in leadership areas, and sentiment that can approach extremes relatively quickly."
From its March 2020 pandemic-low, the S&P 500 has more than doubled, with gains in the past year fueled by bets on a soft economic landing and optimism about the impact of artificial-intelligence over corporate earnings.
While US stocks are now pricing in plenty of good news, UBS's Chief Investment Office sees the potential for further gains in the event of a "Goldilocks" economic outcome.
"Our base case remains for a soft landing for the US economy, with the S&P 500 ending the year around current levels," said Solita Marcelli at UBS Global Wealth Management. "However, recent economic data have highlighted the potential for a period of continued stronger growth, tame inflation, and swifter monetary easing. In this event, we believe the S&P 500 has the potential to rise to around 5,300 this year."
Stronger than expected earnings are leading companies to announce share buybacks at a blistering pace as 2024 gets going — a potentially crucial pillar of support for global stock markets already trading at all-time highs.
US companies have announced $105 billion in planned share repurchases in the first seven days of February, surpassing the full-month tally in January. It's the strongest start to a February ever for announced buybacks and the second-best start to a year after 2023, data by research firm Birinyi Associates Inc. show.
A survey conducted by 22V Research shows that 56% of the investors polled think economic growth will be stronger than consensus estimates in 2024. That's up from 35% two weeks ago. Recession odds are down from 18% to 7%. The tally also showed that tech is the "most-popular long" for the rest of 2024.
Stocks have tended to rally after the first Fed rate cut, but the phase of the economic cycle matters, according to Ed Clissold at Ned Davis Research. The strongest performance has come during soft landings, while the weakest has come when the economy entered recession less than a year after the first cut.
"Growth has outperformed value after first cuts — especially during slow cycles," Clissold wrote in a note entitled: "Dear Jay: move slowly. Sincerely, the bulls."
Now big tech — the group that's powered the equity resurgence — is bringing in more cash than ever before, priming the group to return money to shareholders and potentially adding fuel to a rally that's already sent most of the group into record territory.
The five biggest technology companies that have reported earnings so far — Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc. and Meta Platforms Inc. — generated a record $139.5 billion of combined cash from operations in the quarter that ended on Dec. 31, according to data compiled by Bloomberg.
An index of sentiment among chief executive officers of US companies has turned positive for the first time in two years, according to the Conference Board.
At these levels, the equity market appears overbought — but the fact is that many traders don't want to miss out on continued gains. That has prompted outsized interest in options contracts that provide upside exposure for minimal premium.
The premium in implied volatility of 3-month 10-delta calls to 40-delta calls hovers around its highest in a decade, as pointed out by Susquehanna International Group. That relationship signals added demand for call options implying higher gains relative to those seeking more modest advances.
Increasingly, traders are turning to the cheap contracts to position for broad market advances without having to purchase pricey benchmarks.
Corporate Highlights:
- Walt Disney Co. reported better-than-expected earnings for its fiscal first quarter and issued an upbeat profit outlook for the year, giving Chief Executive Officer Bob Iger ammunition to deflect proxy challenges at its shareholder meeting this spring.
- Chip designer Arm Holdings Plc issued a surprisingly bullish earnings forecast, showing its push beyond smartphones is helping fuel growth.
- PayPal Holdings Inc. said it expects earnings to be flat this year as it continues to cut costs and streamline its operations.
- Harley-Davidson Inc. eked out a fourth-quarter profit that beat estimates as sales fell as the rugged American brand boost incentives to offset high-borrowing costs on slow-selling motorcycles.
- Under Armour Inc. raised its outlook for full-year earnings, with cost cuts in its turnaround effort making up for a continued decline in revenue.
- Philip Morris International Inc. forecast high single digit profit growth in 2024 as shipments of its Zyn nicotine pouches surge in the US, offsetting lower cigarette sales.
- Spirit Airlines Inc., fighting to preserve its acquisition by JetBlue Airways Corp., said revenue will increase this quarter more than analysts were expecting and that it has the liquidity needed to stand on its own even as concerns mount about its financial future.
Key events this week:
- US CPI revisions, Friday
- Germany CPI, Friday
- President Joe Biden hosts German Chancellor Olaf Scholz at the White House, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 was little changed as of 1:46 p.m. New York time
- The Nasdaq 100 rose 0.2%
- The Dow Jones Industrial Average was little changed
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro was little changed at $1.0776
- The British pound was little changed at $1.2616
- The Japanese yen fell 0.8% to 149.34 per dollar
Cryptocurrencies
- Bitcoin rose 2.3% to $45,191.49
- Ether was little changed at $2,428.8
Bonds
- The yield on 10-year Treasuries advanced three basis points to 4.15%
- Germany's 10-year yield advanced four basis points to 2.35%
- Britain's 10-year yield advanced six basis points to 4.05%
Commodities
- West Texas Intermediate crude rose 3.1% to $76.14 a barrel
- Spot gold fell 0.2% to $2,031.66 an ounce
- This story was produced with the assistance of Bloomberg Automation.
--With assistance from Carly Wanna, Alexandra Semenova, Allegra Catelli, Jessica Menton, Elena Popina, Michael Msika and Subrat Patnaik.
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