Big tech led gains in stocks on Tuesday, with traders counting on the earnings season to see whether the enthusiasm around artificial intelligence will justify this year’s market advance.
(Bloomberg) — Big tech led gains in stocks on Tuesday, with traders counting on the earnings season to see whether the enthusiasm around artificial intelligence will justify this year’s market advance.
The S&P 500 closed at its highest since April 2022, the Nasdaq 100 outperformed and the Dow Jones Industrial Average saw its 12th straight advance — the longest winning run in over six years. In late trading, a $210 billion exchange-traded fund tracking the Nasdaq 100 (QQQ) climbed as Google’s parent Alphabet Inc. reported revenue that beat analysts’ expectations. Microsoft Corp. posted tepid sales growth, while Texas Instruments Inc. gave a lukewarm forecast.
With the S&P 500 just 5% away from its all-time high, elevated bullish positioning and indicators pointing to overbought levels, many investors are scouring earnings to make a decision on where to go from here. That’s especially true when it comes to big tech, with the Nasdaq 100 continuing to push higher even after an over $5 trillion rally that has spurred concerns about overstretched valuations.
“The next couple of weeks will be when the proverbial rubber hits the road for the Nasdaq 100,” said Matthew Weller, global head of research at Forex.com and City Index. “With the index still hovering near bull-market highs and up more than 40% on the year, investor expectations are clearly elevated — leaving little room for error.”
In other corporate news, Wells Fargo & Co. said its board authorized a new common stock repurchase program of up to $30 billion. PacWest Bancorp is merging with Banc of California as it seeks to navigate a bout of upheaval that brought down a handful of its peers. United Parcel Service Inc. reached a tentative labor deal with the Teamsters union, staving off a possible strike as soon as next week. General Electric Co. and 3M Co. reported earnings that blew past Wall Street’s expectations.
Fed Countdown
On the eve of the Federal Reserve’s rate decision, strong consumer confidence data bolstered the soft-landing narrative — while suggesting policymakers aren’t done with their inflation fight yet. Rates on swap contracts continued to price in a quarter percentage-point Fed hike on Wednesday, with an additional 12.5 basis point increase factored in by year-end. That indicates a 50% likelihood of another quarter-point move.
Treasury two-year yields, which are more sensitive to imminent Fed moves, dropped five basis points to 4.87%. The dollar halted a five-day advance. Oil held its recent gains, helped by tighter supplies and optimism that China’s government will boost the country’s economy.
There are so many bulls in the US stock market that any disappointment on the economy or earnings poses a risk to the rally, according to Citigroup Inc. strategists. Investor exposure to the S&P 500 remains extended and one-sided, even after bullish momentum has waned in recent weeks, a team including Chris Montagu said.
Given that Wall Street had set a low bar coming into the reporting season, roughly 80% of the companies have thus far beaten profit estimates, according to data compiled by Bloomberg.
“We are about to enter the height of earnings season,” said Brad Bernstein, managing director at UBS Wealth Management. “As long as earnings continue to exceed expectations, the market can continue to move higher.”
For traders who closely follow Fibonacci analysis, the S&P 500 this month crossed above 4,505 to reach the 76.4% retracement of its peak-to-trough decline from its January 2022 high and its subsequent October low.
Since 1929, when the benchmark equities gauge suffered a bear market decline of at least 20% or more, this retracement level proved to be the start of a new uptrend, according to data compiled by Bloomberg Intelligence. So the index finishing above that level implies a bottom has definitely been set.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.3% as of 4 p.m. New York time
- The Nasdaq 100 rose 0.7%
- The Dow Jones Industrial Average was little changed
- The MSCI World index rose 0.5%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro was little changed at $1.1053
- The British pound rose 0.6% to $1.2900
- The Japanese yen rose 0.4% to 140.88 per dollar
Cryptocurrencies
- Bitcoin rose 0.2% to $29,193.95
- Ether rose 0.3% to $1,856.89
Bonds
- The yield on 10-year Treasuries advanced one basis point to 3.88%
- Germany’s 10-year yield was little changed at 2.43%
- Britain’s 10-year yield advanced one basis point to 4.27%
Commodities
- West Texas Intermediate crude rose 1.1% to $79.59 a barrel
- Gold futures rose 0.2% to $2,005.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott, Tassia Sipahutar, Sujata Rao and Isabelle Lee.
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