(Bloomberg) -- Stocks rose for the first time this week, with traders parsing a slew of corporate earnings for clues on the health of the world’s largest economy. Treasuries rebounded after days of losses.
A gauge of the “Magnificent Seven” hit a three-month high, with Tesla Inc. up 22% in its biggest rally since May 2013. Elon Musk’s electric-vehicle giant reported strong earnings and forecast as much as 30% growth in car sales next year. United Parcel Service Inc. — an economic barometer — jumped 5.3% after returning to sales and profit growth. International Business Machines Corp. and Honeywell International Inc.’s results failed to inspire.
“Despite the possibility of more volatility as we get deeper into earnings season and close in on the November election, the market’s longer-term outlook remains solid,” said Daniel Skelly at Morgan Stanley’s Wealth Management Market Research & Strategy team.
The market barely budged after Thursday’s economic data, with new home sales beating estimates, initial jobless claims dropping and business activity expanding at a solid pace.
“Goldilocks data that’s in-line with expectations (so not too good or too bad) is the best outcome for a continued rebound in stocks and bonds,” said Tom Essaye at The Sevens Report.
The S&P 500 rose 0.2%, reclaiming its 5,800 mark. The Nasdaq 100 climbed 0.8%. The Dow Jones Industrial Average dropped 0.3%, posting a fourth consecutive day of losses — the longest losing streak since June. In late hours, Tapestry Inc. — the maker of Kate Spade handbags — rallied as a judge blocked the planned acquisition of rival Capri Holdings Ltd.
US 10-year yields fell four basis points to 4.20%. A $24 billion five-year TIPS auction drew the lowest yield this year as inflation-protected Treasuries have outperformed since the Federal Reserve cut rates last month.
Oil dropped as oversupply concerns overshadowed the risks from Israel’s potential retaliatory strike on Iran.
“The market appears to be driven by the projected outcome of the earnings reporting period, the presidential election, and the bond market’s interpretation of future monetary actions by the Federal Reserve,” said Sam Stovall at CFRA. “Investors see the resiliency of the economy and employment forcing the Fed to be ‘slower to lower’ on rates.”
He still sees two 25 basis-point rate cuts in 2024. Money markets are currently pricing about an 85% chance the Fed will cut rates by a quarter-point next month, and around 135 basis points of easing by the end of 2025.
While the equity market is still down for the week, the slide did little to dent the wall of bullish technical signals built up around the S&P 500. The US stock benchmark continues to trade comfortably above its 200-day moving average, clocking more than 240 straight days above the closely watched long-term line.
In the prior 13 instances when the S&P 500 closed above its 200-day average for at least 242 consecutive days, with the index less than 3% below a record, the gauge proceeded to post a median gain of 7.2% in the next six months, advancing in all but two cases, SentimenTrader’s analysis found.
“Near term, pullbacks/profit-taking should be expected given the uncertainties around the upcoming US presidential election, geopolitical uncertainty, and the earnings parade,” said Craig Johnson at Piper Sandler. “No change to our 2024 year end S&P 500 price objective of 6,100.”
“We see room for US stocks to move higher. We hold an attractive view on the IT sector, as well as the utilities, financials, consumer discretionary, and communication services sectors,” said Solita Marcelli at UBS Global Wealth Management.
Chris Senyek at Wolfe Research notes that market concentration is at the highest levels since the 1960’s “Nifty Fifty” era — with the top seven companies accounting for about 30% of the market weight and the top 25 companies at 48%.
During the 1960’s and 1970’s, these market darlings were characterized by their consistent earnings growth and highprice-to-earnings ratios similar in respects to the “Magnificent Seven”, he said. Ultimately, what broke the trend was the inflationary environment of the 1970’s and the ensuing mid-70’s and early 80’s recessions.
“In a similar vein, we don’t see current trends breaking until the next recession and/or when AI enthusiasm substantially wanes,” Senyek added. “With that said, we remain bullish on the market broadening out consistent with our call to own earlier cyclical stocks (FINs is our favorite).”
Corporate Highlights:
Key events this week:
Some of the main moves in markets:
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Cryptocurrencies
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This story was produced with the assistance of Bloomberg Automation.