Wall Street notched a milestone, with the S&P 500 topping 5,000 amid a renewed rally in big tech and hopes the Federal Reserve will soon be able to cut rates — bolstering the outlook for corporate profits.
Just as Americans get ready for football's biggest night — with tickets for Sunday's Super Bowl setting fresh records — U.S. stocks scored a victory of their own to hit another all-time high. Emboldened by bets on a soft landing and the power of artificial-intelligence — equities continued to push forward, defying doomsayers and warnings about an overstretched market.
"The S&P 500 is the best single barometer of confidence in Corporate America's earnings power and the strength of the economy," said George Ball, chairman of Sanders Morris. "The direction of the S&P 500 reflects whether the economy and earnings are improving or deteriorating."
A few days ahead of the key consumer price index, investors breathed a sigh of relief as a government report — which is usually ignored by markets — confirmed inflation progress at end of 2023.
In the immediate aftermath of the data, Treasuries rose — but quickly reversed that move. The two-year yield went back to levels seen since before the Fed's December "pivot." Fed Bank of Atlanta President Raphael Bostic said he's "laser focused" on returning inflation to target, and his Dallas counterpart Lorie Logan said she sees no urgency to cut rates
In the immediate aftermath of the data, Treasuries rose — but quickly reversed that move and pushed lower.
The two-year yield went back to levels seen since before the Fed's December "pivot." Focus is now shifting to Tuesday's inflation reading after buyers snapped up more than $120 billion of bond issuance this week.
To David Donabedian at CIBC Private Wealth U.S., the current economic backdrop supports Wall Street's bullish momentum.
"The market has pivoted from believing the Fed would be its savior to deciding it doesn't need a savior with the economy supporting it," Donabedian noted.
With the S&P 500′s new 5,000-point milestone, the question is: What's next for the index?
Performance for the gauge has been positive after reaching major milestones, according to Adam Turnquist at LPL Financial. Of the last nine, the index posted a 12-month average return of 10.4% — with 78% of occurrences producing positive results, he noted.
"A close above this closely watched level will undoubtedly create headlines and further feed fear of missing out emotions," Turnquist noted. "Outside of a potential sentiment boost, round numbers such as 5,000 often provide a psychological area of support or resistance for the market."
For now, that's "just a big round number," according to Matt Maley at Miller Tabak + Co.
"Of course, if the market rolls over in any meaningful way from this level, that will change things," he noted. "A failure at that level would make it a new key resistance level. Either way, the stock market has seen a fabulous rally this year. So unless any decline becomes a substantial one, it won't mean a whole lot for the big picture."
"While some will say it is just another number in the vast sea of numbers that we digest every day, this one is a bit different," said Kenny Polcari at SlateStone Wealth. "5,000 represents a new millennium, and so it does create additional excitement. So I would expect the excitement to continue for a bit more."
Another reason sustaining the stock market's strength to start the year is certainly the outlook for corporate profits.
