S&P 500 Climbs as 90% of Its Shares Push Higher: Markets Wrap

(Bloomberg) — Stocks hit fresh all-time highs as the latest economic data reinforced bets the Federal Reserve will cut rates in September.

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About 90% of the shares in the S&P 500 rose Friday. The index wiped out its previous session’s slide — heading toward a 38th record this year. Tech megacaps rebounded, and smaller firms kept climbing. Banks underperformed at the start of the US earnings season, with results from Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. failing to fuel industry momentum.

Equity traders brushed off a weak reading on consumer sentiment to focus on prospects for rate cuts that could ultimately benefit Corporate America. Data also showed producer prices climbed slightly more than forecast — but categories used to calculate the Fed’s preferred inflation measure, the personal consumption expenditures price index, were not so bad.

“We continue to expect the Fed to join the global rate-cutting cycle in September, with 50 basis points of easing this year,” said Mark Haefele at UBS Global Wealth Management.

The S&P 500 rose to 5,650, It was set for its 10th weekly gain in 12 weeks. The Nasdaq 100 added almost 1.5%. The Dow Jones Industrial Average topped 40,000. Nvidia Corp. led gains in big tech. Tesla Inc. rallied a day after tumbling over 8%. The Russell 2000 of small caps was on track for its best week since November.

Treasury 10-year yields declined two basis points to 4.19%. The pound is trading near its strongest level in a year versus the dollar and the highest in almost two years against the euro.

To Krishna Guha at Evercore, a “new Fed phase” may sustain the stock-market breadth.

“We are now entering a new phase in which preemptive cuts (as opposed to reactive cuts driven by bigger rises in unemployment) can de-risk the forward growth outlook, he noted. “Provided the Fed is not moving too slowly to arrest the underlying weakening of the economy, this de-risking of the forward growth outlook favors market breadth and cyclical sectors.”

One of the biggest questions about the market rotation of the previous session — which notably improved breadth — is whether or not it is a legitimate trend reversal of the last year and half — or yet another head fake, according to Dan Wantrobski at Janney Montgomery Scott.

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“We will say at the outset that as far as the technicals are concerned, it cannot be confirmed that yesterday’s action was the beginning of a sustainable longer-term trend,” he noted. “However, from a trading perspective, we do believe we can continue to see further rotation over the near term, as charts still point to the potential for mean reversion.”

One of the highlights of this week is the big rebound in smaller firms — which have largely lagged the broader market and especially big tech names this year.

Quincy Krosby at LPL Financial says the Russell 2000 is viewed as an important barometer of potential interest-rate easing, but also a gauge for economic conditions.

“Historically, the Russell 2000 lags the market for three months following the first rate cut. The Fed normally cuts rates due to concerns about the economy and specifically the labor market,” Krosby noted. “The market would much prefer a rate cut predicated on inflation easing amid a solid economic landscape.”

The next few economic data points, in addition to earnings reports, should help clarify if small-cap performance is completely warranted, she concluded.

“Bulls withstood a barrage of data this week,” said Mark Hackett at Nationwide. “Market momentum remains relentless. Several important hurdles have been cleared, making earnings the next likely market catalyst.”

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