S&P 500 treads water after its $2.7 trillion rally: Markets wrap

Stocks wavered after a $2.7 trillion rally in November that was fueled by bets the Federal Reserve will end its hiking cycle to prevent an economic recession. The dollar erased its 2023 advance.

The S&P 500 was little changed, while still heading toward its longest streak of weekly gains since July. Piles of derivatives contracts tied to stocks and indexes were due to mature Friday — which could amplify instability. Applied Materials Inc. sank on a report it faces a US criminal probe for allegedly violating export restrictions to China. Homebuilders rose as new US home construction unexpectedly picked up.

In a powerful advance, equities have made a rapid about-face from oversold to overbought within a few weeks, spurring speculation the market was due for a breather. Global stock funds attracted $23.5 billion in the week through Nov. 15, the second-biggest inflows of the year,  Bank of America Corp. noted, citing data from EPFR Global.

After an “epic risk rally,” investors should offload those assets as technical and macroeconomic headwinds are building, according to Michael Hartnett, BofA’s strategist. “Fade it,” he noted.

The dollar fell — on course for its worst month in a year — amid bets the US currency has already peaked as softer-than-expected economic data reinforced expectations the Fed is done with rate hikes. Ten-year Us yields hovered near 4.4%. Oil climbed after sinking into a bear market.

Traders also kept a close eye on the latest Fedspeak. Fed Vice Chair for Supervision Michael Barr reiterated officials are likely at or near the end of their tightening campaign. Meantime, Fed Bank of San Francisco President Mary Daly said policymakers aren’t certain inflation is on a path to their 2% target.

“While it is unlikely the Fed will raise rates, investors are jumping ahead too quickly embracing rate cuts. We will likely go for months with the current Fed policy in place even if inflation continues to come down,” said David Donabedian, chief investment officer of CIBC Private Wealth US. “Some time in 2024 the Fed will start to lower rates. But we are in a waiting game.”

The valuations of high-quality stocks — those with high profitability and low leverage — are significantly more expensive compared to both the overall market and their low-quality counterparts, an analysis by Bloomberg Intelligence found.

The other times in the recent past when quality commanded such high valuation premiums were in 2020 and 2008-2009, both times of turmoil. These periods pushed people to seek safety in high-quality investments, leading to the valuation spikes.

“Quality stocks have historically outperformed in the late stages of the business cycle, including in periods of economic contraction, which should offer portfolio protection if the economy slows more than we expect,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.

This week’s bond-market rally has gone too far, too fast — as rate-cut bets are likely to be priced out for next year, according to Franklin Templeton’s Sonal Desai.

“It smacks much more of fear of missing out,” Desai told Bloomberg Television. “The move down in yields has been too fast.”

A few more retailers and tech companies will report earnings next week. 

Best Buy Co., Nordstrom Inc. and Lowe’s Cos. are set to post slumping sales, while Nvidia Corp.’s quarterly results could still exceed sky-high investor expectations thanks to strong demand for generative artificial intelligence.

Corporate Highlights:

• Amazon.com Inc. is cutting hundreds of employees in the division responsible for its voice-activated Alexa assistant, according to a memo sent to employees.
• ChargePoint Holdings Inc. announced the sudden resignation of its longtime chief executive officer while posting disappointing quarterly revenue.
• Gap Inc. reported profit that exceeded forecasts and a smaller-than-expected drop in comparable sales.
• Ross Stores Inc., a discount department store chain, reported comparable sales that beat estimates.
• Moody’s Investors Service on Thursday lowered its outlook for Tyson Foods Inc. as it expects the largest US meat producer to keep burning cash in the coming 12 to 18 months.
• Elon Musk’s SpaceX is poised to launch its deep-space Starship rocket system Saturday from South Texas for the second time ever.

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 11:35 a.m. New York time
• The Nasdaq 100 fell 0.2%
• The Dow Jones Industrial Average fell 0.1%
• The Stoxx Europe 600 rose 1%
• The MSCI World index rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.3%
• The euro rose 0.2% to $1.0878
• The British pound was little changed at $1.2422
• The Japanese yen rose 0.6% to 149.78 per dollar

Cryptocurrencies

• Bitcoin was little changed at $35,976.63
• Ether fell 2.1% to $1,914.17

Bonds

• The yield on 10-year Treasuries advanced three basis points to 4.46%
• Germany’s 10-year yield was little changed at 2.60%
• Britain’s 10-year yield declined three basis points to 4.12%

Commodities

• West Texas Intermediate crude rose 3.1% to $75.19 a barrel
• Spot gold was little changed