S&P 500 hits 5,600 mark in longest rally this year: markets close

(Bloomberg) — A rally in the world’s biggest technology companies has sent stocks soaring to all-time highs, and Jerome Powell’s comments to Congress did little to dissuade traders from betting on Federal Reserve rate cuts this year.

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For the first time in its history, the S&P 500 surpassed 5,600 points. A new megacap bid sent the U.S. equity benchmark into its longest rally since November, with Nvidia Corp. rising more than 2.5% and Apple Inc. rising on news that it intends to sell 10% more new iPhones after a turbulent 2023. after a strong sale of 10-year bonds for $39 billion. Swaps are pricing in two Fed cuts in 2024 – and there is a greater chance that the first will occur in September.

As Wall Street braced for the consumer price index, Powell said the Fed doesn’t need inflation below 2% before cutting rates, adding that policymakers still have more work to do. He noted that the job market has cooled “quite significantly.” Powell cited a “good path forward” on balance sheet flow and said commercial real estate does not threaten financial stability.

“The main takeaway from his testimony is that the Fed’s assessment of the balance of risks is changing in a way that – if supported and sustained by incoming data – will result in a rate cut in September,” said Evercore’s Krishna Guha.

The S&P 500 rose 1% – for the seventh day in a row – to hit its 37th record this year. Gold and silver mining stocks rose on Fed easing bets. Banks underperformed. Google parent Alphabet Inc. has shelved efforts to acquire HubSpot Inc., according to people with knowledge of the matter.

US 10-year yields fell two basis points to 4.28%. Bank of England chief economist Huw Pill said the timing of a rate cut was still an “open question”, prompting traders to scale back bets on the August cut. Oil rose as the U.S. holiday boosted demand for gasoline and jet fuel.

“Markets remain remarkably calm despite this week’s deluge of data, including Fed Chairman Powell’s testimony, the CPI/PPI reports and the start of earnings season,” said Mark Hackett at Nationwide.

The so-called core CPI, which excludes food and energy costs and is seen as a better measure of underlying inflation, is expected to rise 0.2% in June for a second month. That would mark the smallest consecutive gains since August — a pace more acceptable to Fed officials.

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“The June CPI report appears to be another ‘very good’ report that should boost the FOMC’s confidence about the path of inflation,” said Anna Wong of Bloomberg Economics. “This should set the stage for the Fed to begin cutting rates in September.”

A survey conducted by 22V Research shows that 55% of investors expect the market reaction to Thursday’s CPI to be “risky”, 16% said “risky” and 29% “mixed/insignificant”.

“There is optimism about inflation in general,” said Dennis DeBusschere at 22V, adding that the survey also showed that investors think “the CPI is on a favorable trajectory for the Fed.”

Meanwhile, some trading desks say investors should prepare for a possible break in the eerie calm that has gripped the market recently.

The options market is betting that the S&P 500 index will move 0.8% in either direction following Thursday’s consumer price report, based on the price of that day’s at-the-money straddles, according to Stuart Kaiser, head of U.S. equity trading strategy at Citigroup.

If that happens, it would be the biggest move for the index since June 12, the day of the last CPI print and interest rate decision.

Market volatility could increase in the coming days and weeks amid political uncertainty in the U.S., comments from the Fed chairman and the start of second-quarter earnings season, according to Mark Haefele of UBS Global Wealth Management.

For the first time since 2022, S&P 500 profits may not be focused solely on technology, with the quarter’s success depending on everything except megacap tech heavyweights who have driven stocks to all-time highs, according to strategists at Bloomberg Intelligence led by Gina Martin Adams.

“While forecasts for the ‘Magnificent Seven’ remain robust, their earnings are expected to slow in the second quarter — just as the rest of the S&P 500 may finally post its first annual growth in at least five quarters,” they noted.

The Magnificent Seven may have already peaked, while the rest of the S&P 500 stocks could post their first earnings expansion in at least six quarters, strategists concluded.

Corporate Highlights:

• Microsoft Corp. Warner Bros. avoided the threat of a lengthy European Union antitrust investigation into its cloud business after brokering a deal with a business lobby backed by Amazon.com Inc., which had complained about its software licensing agreements.

• Intuit Inc. is laying off 1,800 employees, replacing low-performing executives and employees with new hires aimed at sharpening the company’s focus on products that use artificial intelligence.

• has agreed to buy Silo AI for $665 million in cash, adding an artificial intelligence model maker that will help its effort to close the gap with Nvidia Corp.

• Archer-Daniels-Midland Co. — working to put an accounting scandal behind it — has hired a 3M Co. executive.

• The U.S. Federal Trade Commission is preparing a lawsuit against the three largest drug intermediaries over their use of rebates for insulin and other medications, according to a person familiar with the investigation.

• Honeywell International Inc. has agreed to buy the liquefied natural gas processing technology and equipment business of Air Products and Chemicals Inc. for $1.81 billion in cash.

Main events this week:

• US CPI, initial unemployment claims, Thursday

• Fed’s Raphael Bostic and Alberto Musalem speak, Thursday

• China trade, Friday

• University of Michigan Consumer Sentiment, US PPI, Friday

• Earnings from Citigroup, JPMorgan and Wells Fargo, Friday

Some of the main movements in the markets:

Actions

• The S&P 500 was up 1% at 4 p.m. New York time

• The Nasdaq 100 rose 1.1%

• The Dow Jones Industrial Average rose 1.1%

• The MSCI World index rose 1%

Coins

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro rose 0.1% to $1.0829

• The British pound rose 0.5% to $1.2846

• The Japanese yen fell 0.3% to 161.74 per dollar

Cryptocurrencies

• Bitcoin fell 0.9% to $57,424.76

• Ether rose 1.2% to $3,108.05

Titles

• The 10-year Treasury yield fell two basis points to 4.28%

• Germany’s 10-year yield fell five basis points to 2.53%

• Britain’s 10-year yield fell three basis points to 4.13%

goods

• West Texas Intermediate crude rose 1.2% to $82.40 a barrel

• Spot gold rose 0.3% to $2,372.14 an ounce

This story was produced with help from Bloomberg Automation.

–With assistance from Cecile Gutscher, Richard Henderson, Joel Leon and Jessica Menton.

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