Powell spotlights tech gains to boost stocks: Market wrap-up

(Bloomberg) — A rebound in the world’s largest technology companies pushed stocks higher as traders pored over the latest economic data and awaited comments from Jerome Powell for clues on the Federal Reserve’s next move. U.S. Treasuries rose, and the dollar fluctuated.

The stock market is heading towards new all-time highs, with the S&P 500 set to post its 56th record closing in 2024. The Nasdaq 100 rose about 1%. Nvidia Corp. led gains in the Big Seven mega-cap index, extending its gains this year to 62%. Salesforce Inc. shares rose 9% and Marvell Technology Inc. shares soared 24%, as their results bolstered hopes that both companies will continue to benefit from the industry-wide artificial intelligence boom.

Just days before the key jobs report is released, data showed U.S. corporate employment remained solid in November, while services sector activity expanded at the slowest pace in three months. Powell participated in a moderated discussion later Wednesday where one of his favorite economic barometers, the Beige Book, could reflect a post-election surge in sentiment.

“Right now, another rate cut is likely this month and then a pause in January, but a significant change in the employment situation could rearrange the pieces of the puzzle,” said Chris Larkin of Morgan Stanley E*Trade.

The S&P 500 rose 0.4%. The Nasdaq 100 rose 0.9%. The Dow Jones Industrial Average rose 0.4%. German stocks hit new highs and European shares rose for a fifth straight session. Investors are watching a no-confidence vote in France.

The 10-year Treasury yield fell 4 basis points to 4.18%. Markets suggest the probability of the Federal Reserve cutting interest rates by a quarter percentage point this month has increased to around 70%. In addition, by the end of next year, the cumulative easing policy will reach 80 basis points.

LPL Financial’s George Smith believes the rally in stocks is likely to continue as December is a good month for market seasonality.

Overall, it was the second-best month since 1950, with an average gain of 1.6%, and the third-best month in the past five years, Smith said. When looking at the proportion of positive monthly returns going back to 1950, December typically has the highest proportion of positive monthly returns at around 74%.

Despite the seasonality, Smith did not rule out the possibility of short-term weakness, especially as geopolitical threats threaten to escalate. He noted that stocks may also need to readjust to the possibility that the Fed’s rate-cutting cycle will be slower and shallower than the market is currently pricing in.

“Given the positive macro environment, earnings growth and the Fed remaining supportive of markets, we remain tactically bullish into year-end,” wrote JPMorgan’s market intelligence team led by Andrew Tyler. “A sensible approach,” they said. It’s about taking advantage of the market’s momentum and seeing lower potential for pullbacks before mid-January.”

To some technical analysts who watch and analyze price action, as well as strategists who follow investor sentiment, the initial rumors are starting to sound a lot like an overheated stock market.

Bank of America Corp.’s indicator tracking the average recommendation from sell-side strategists remains at its highest level since early 2022, in neutral territory but closer to a contrarian “sell” signal than a “buy” signal.

The Leuthold Group’s Doug Ramsey wrote this week: “Statistically (paradoxically), the impact of a sharp rally in 2024 makes the market riskier for long-term investors but potentially safer for short-term speculators .” Leuthold’s Major Trend Index (MTI) – which takes into account many different types of indicators – remains “neutral,” but all indexes in the MTI closed last week with maximum bullish readings.

All short-term positioning, chasing prices, and mechanical buying illustrate a go-with-the-flow attitude. But that doesn’t stop the possibility of things changing when the calendar turns to 2025.

“Simply put, and probably no one wants to hear it, this is not a good setup – investors and speculators alike have been sucked into a perpetual bull market paradise,” writes Callum Thomas of Topdown Charts.

Callie Cox of Ritholtz Wealth Management said investors are holding out hope for a Santa Claus rally, but may need a healthy dose of skepticism after November’s strong gains.

“The bar for success is much higher now in an economy that may still be in flux,” Cox said. “Yields show a lot of change in expectations over the past two months, but we haven’t seen the economy yet.” Any sustained, clear momentum in the data matters, and the job market is under the microscope.”

Nationwide’s Mark Hackett said the sustainability of the market rebound would depend on consumers’ continued resilience. One of the best predictors of consumer spending is the health of the job market.

“The market continues to be driven by a combination of technical and fundamental factors,” Hackett noted. “The ongoing rally has demoralized bears, creating a ‘virtuous cycle’ of buying fueling further buying. Given the lower expectations and valuations High, there are sustainability concerns in 2025, but this is unlikely to derail near-term momentum.”

Interest in stocks shows no sign of waning this year. The S&P 500 hit new highs, soaring more than 25%, driven by technology stocks and broad preference for U.S. assets. The rally continued after the election of Donald Trump, which raised hopes of tax cuts and deregulation.

While U.S. stocks continue to outperform global equities, BlackRock Investment Institute says this is likely to continue. The company noted that the U.S. benefits more from the “tremendous forces” driving corporate profits. This is underpinned by good growth prospects and potential tax cuts and regulatory easing.

“Some valuation metrics – whether price-to-earnings ratios or equity risk premiums – look rich relative to history. But they may not tell the full story,” BII said. “Comparing today’s indices to those of the past is like comparing apples to oranges. Additionally, valuations tend to be more important for long-term returns than short-term returns.”

BII said the immense power of artificial intelligence may bring more benefits to U.S. stocks, which is why the company remains overweight, especially relative to global peers such as European stocks.

“The upshot: We are currently exposed to risks but remain nimble. Key signs of a change in our view include any spike in long-term bond yields or an escalation in trade protectionism,” BII concluded.

Some major trends in the market:

This story was produced with the assistance of Bloomberg Automation.

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