Stocks Rise on Wall Street’s ‘Soft Landing’ Hopes: Markets Wrap

(Bloomberg) — The relentless rally in stocks powered ahead on optimism the Federal Reserve will be able to engineer a soft landing, which would bolster the outlook for corporate earnings.

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A fresh bout of risk-taking drove the S&P 500 toward its 20th record this year, led by industrials and banks. Not even losses in a pair of megacaps — Apple Inc. and Alphabet Inc. — curbed the market momentum. The Nasdaq 100 was also set for an all-time high, buoyed by Micron Technology Inc.’s outlook. Reddit Inc. soared in its debut.

The latest round of housing, manufacturing and labor-market data pointed to a resilient economy that, in theory, would scare policymakers trying to bring inflation back to target. A day after the Fed signaled it’s on track to cut rates this year, traders decided to keep looking at the glass half full.

“For now, the soft-landing thesis is intact, with leading indicators showing nascent signs of trending more positively,” said Jim Baird at Plante Moran Financial Advisors.

The S&P 500 hovered near 5,250. Small caps extended this week’s gains. Two economic bellwethers — FedEx Corp. and Nike Inc. — were due to report earnings after the close. Treasury 10-year yields were little changed at 4.28%.

Across the Atlantic, the British pound fell after a pair of Bank of England’s hawks dropped their push for hikes. And a surprise decision from the Swiss National Bank to cut rates also pushed the Swiss franc lower.

With the stock market making new record highs, the odds are quickly rising that the “critical juncture” that we’ve been harping on will resolve itself with more upside movement, according to Matt Maley at Miller Tabak + Co.

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“We still believe that a short-term pullback could take place at any time,” Maley said. “However, if it doesn’t come quickly and sharply — the odds that it will become a full-blown correction will drop.”

To Societe Generale SA strategists, there’s no stopping to the rally in US stocks against a backdrop of improving outlook for corporate earnings and the frenzy around artificial intelligence.

The team led by Manish Kabra boosted its year-end target for the S&P 500 to 5,500 points from 4,750 — the highest forecast among strategists tracked by Bloomberg.

“US exceptionalism is going from strength to strength,” Kabra wrote in a note. “Despite widespread market optimism, we view this as rational rather than excessive, as profit growth continues to increase and set new records for the S&P 500.”

Despite strong gains in equity markets, “we are extremely excited about the investing landscape” said the GMO Asset Allocation team.

“An abundance of cheap assets underpins this enthusiasm from an absolute return standpoint, while appealing valuation spreads within asset classes present us with the best relative asset allocation opportunity we’ve seen in 35 years,” the firm said.

Looking at previous periods when the Fed was on hold shows that the current pause now ranks second in terms of duration, according to an analysis from Ryan Grabinski at Strategas Securities, through March 20.

“The good news is that the longer they hold, the more the market has historically moved higher,” he noted.

In periods where the pause is greater than 100 days, the market is up on average 13% compared to when the pause is less than 100 days and the market on average is down, Grabinski said. The best performance occurred during the 2006-2007 pause which was also the longest and resulted in the S&P 500 rising 22%.

Meantime, rally-chasing investors who rode US equities higher this year have flocked to an upward trend occurring outside of just the so-called Magnificent Seven that have dominated the market: the one taking place in quality stocks.

As traders have been enamored by artificial intelligence, they’ve also piled into stocks of companies across the broader market with high profitability and strong fundamentals, according to Piper Sandler & Co.’s Michael Kantrowitz.

“AI is a subset of what’s driving momentum, but the rest is good old quality fundamental,” Kantrowitz said.

Corporate Highlights:

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• Boeing Co. directors plan to meet with top executives from some of their largest airline customers, who are growing increasingly frustrated about the planemaker’s crisis tearing into their business.

• Nelson Peltz…