(Bloomberg) – Tech stocks led gains on Monday, with earnings from the most influential segment of the U.S. stock market set to kick off in a test of the S&P 500’s 12% rise from its October low. .
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Big names like Microsoft Corp. and Tesla Inc. are expected to report results in the coming days, helping shape the fate of a sector that last year struggled on Wall Street amid higher rates. That pessimism has faded in recent weeks as tech companies focus on cost cuts and inflation shows signs of slowing, with the Nasdaq 100 poised for its best consecutive rally since November.
The latest notable company to announce job cuts to cut spending is Spotify Technology SA, which announced plans to cut around 6% of its employees. A call from Barclays Plc also encouraged traders to upgrade Advanced Micro Devices Inc. and Qualcomm Inc., which prompted a nearly 5% jump in the Philadelphia semiconductor index.
The S&P 500 broke through the 4,000 mark, seen by several technical analysts as a watershed level that could define the direction of the gauge.
“We’ll probably find out soon if this latest series is just another of many false alarms or if it really is ‘the one’,” according to strategists at Bespoke Investment Group. “One thing the bulls have worked in their favor is that after the last unsuccessful test in mid-December, the market hasn’t continued to make new lows.”
Now, one thing to keep in mind – especially when it comes to corporate earnings – is that stocks aren’t necessarily cheap at this point. In fact, the S&P 500 may look expensive relative to historical levels given that earnings estimates have been falling for some time.
Another thing to consider is that if the U.S. equity benchmark actually bottomed on Oct. 12, it would be one of the highest valuation lows ever, noted Chief Investment Officer David Bahnsen. of his eponymous wealth management company. The S&P 500 was trading about 17 times to earnings at that time — and bear market lower multiples are historically well below that, he added.
“Investors shouldn’t assume that the easy times in the market are coming back,” Bahnsen said. “We expect increased volatility and a focus on cash flow and quality for the foreseeable future.”
Read: S&P 500 earnings growth this year is turning into a mirage
For Matt Maley of Miller Tabak + Co., the current valuations of the S&P 500 do not leave “much room for disappointment”. And with higher interest rates, it will be difficult for markets to continue to rally if earnings projections for 2023 were to fall further, he added.
Earnings from the start of the fourth quarter show companies in the U.S. equity benchmark are on track to miss expectations by 1% after analysts lowered their projections, Bank of America Corp strategists wrote. ., including Savita Subramanian.
According to strategists at JPMorgan Chase & Co. led by Marko Kolanovic, recent weakening economic data, lower anticipated earnings expectations and weak forecasts for 2023 indicate that markets are set to turn lower.
“A recession is currently not priced into equity markets, in our view,” they added.
Investors are failing to price amid weakening economic and earnings data, according to Morgan Stanley strategist Michael Wilson. Recent optimism around a less hawkish Federal Reserve, reopening China and a weaker dollar is already priced in, he wrote. Nonetheless, he expects equities to rally in 2024 after a tough 2023 as the US economy suffers from an earnings slump.
“Markets have surged this year, driven by China’s reopening, lower energy prices and slowing inflation,” wrote strategists at the BlackRock Investment Institute. “It raised hopes of a soft economic landing, falling inflation and interest rate cuts. We see markets vulnerable to negative surprises – and unprepared for recession. »
As the Fed enters the blackout period ahead of its Jan-Feb 31. 1 meeting, markets priced a smaller – and more traditional – 25 basis point hike. Even though several officials say rates need to peak above 5% and stay higher for longer, markets remain skeptical. According to Anna Wong of Bloomberg Economics, they still don’t believe policymakers will go above 5% and they see the Fed cutting rates aggressively by the end of the year.
In the meantime, Treasury Secretary Janet Yellen said she was encouraged by progress in inflation, energy prices and supply chain problems easing around the world, although the US labor market remains solid.
“Investors should be careful to temper their expectations of premature rate cuts as the Fed will likely need to maintain tight monetary policy throughout the year to fight inflation,” said Jason Pride, chief investment officer of the company. private wealth at Glenmede.
Treasury yields rose and the dollar was little changed.
Read: State Street CEO says Treasuries at risk from US debt downgrade
Key events this week:
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PMI for the US, Eurozone, UK and Japan, Tuesday
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Richmond Fed Manufacturing, Tuesday
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ECB President Christine Lagarde delivers a video message on “the euro as a pledge of resilience” on Tuesday
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U.S. MBA Mortgage Applications, Philadelphia Fed Non-Manufacturing Activity, Wednesday
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U.S. fourth-quarter GDP, new home sales, first jobless claims, Thursday
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US personal income/spending, PCE deflator, University of Michigan consumer sentiment, pending home sales, Friday
Some of the major movements in the markets:
Shares
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The S&P 500 rose 1.1% at 2:39 p.m. PT
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The Nasdaq 100 rose 1.9%
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The Dow Jones Industrial Average rose 0.7%
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The MSCI World index rose 0.9%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0861
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The British pound fell 0.2% to $1.2369
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The Japanese yen fell 0.8% to 130.63 per dollar
Cryptocurrencies
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Bitcoin rose 0.9% to $22,789.65
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Ether fell 0.6% to $1,618.5
Obligations
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The yield on 10-year Treasury bills rose four basis points to 3.52%
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The German 10-year rate rose three basis points to 2.21%
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The UK 10-year yield fell two basis points to 3.36%
Merchandise
This story was produced with assistance from Bloomberg Automation.
–With help from Vildana Hajric, Isabelle Lee and Peyton Forte.
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