Stocks, Bonds Gain After $25 Billion Treasury Sale: Markets Close

(Bloomberg) — The stock market rose to its highest level in a month, adding to a rally fueled by speculation that the Federal Reserve will cut interest rates this year.

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Stocks rose as jobless claims came in higher than estimated, reinforcing bets on Fed policy easing, with the market also rising after a sale of 30-year bonds worth $25 billion registered good demand. The S&P 500 surpassed 5,200 – even though trading volume was 20% below the average over the last 30 days. Gains in stocks were also attributed to Commodity Trading Advisors – riding the momentum – being modeled to buy stocks this week.

“Our sense is that the recovery has been underappreciated, largely because economic surprises have turned modestly negative, and we believe this could lead to additional upside in the near term,” said Chris Senyek of Wolfe Research. “Looking ahead to the end of the year, we hope to remain constructive on the outlook.”

For Leuthold’s Doug Ramsey, another 10% gain in the S&P 500 is not out of the question, at least statistically. He analyzed 80 years of data on bull market recoveries, focusing on those that happened when unemployment was so low and the economic cycle was so mature. If the current rally reaches previous records for length and height, the S&P 500 would end the year at 5,705.

The S&P 500 traded less than 1% from its all-time high. Megacaps were mixed, with Amazon.com Inc. higher and Nvidia Corp. higher. 10-year Treasury yields fell four basis points to 4.46%.

The pound wobbled as Bank of England chief economist Huw Pill said the central bank was “not there yet” in terms of rate cuts, despite growing confidence that it could soon start easing policy.

A survey by 22V Research shows that investors are roughly divided on the S&P 500’s next 10% move – with 52% betting the benchmark indicator will rise and 48% seeing a downward move.

“To the extent that conviction about the next big move in asset prices remains mixed, we expect correlations to remain low and stock selection and micro-themes to dominate,” said Dennis DeBusschere, founder of 22V.

When it comes to the Treasury market, 68% of those surveyed by the company believe the 10-year yield will go to 4% next year – while only 32% said 5%.

Wolfe Research’s Senyek noted that he would remain constructive on stocks unless the economy shows signs of entering a recession or inflation is sticky enough for the market to start pricing in a Fed hike.

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“Neither is part of our base case!” Senyek concluded.

U.S. initial claims for unemployment benefits rose last week to the highest level since August, beating estimates. Fed officials are keeping a close eye on labor demand and wage growth as they debate when it might be appropriate to cut interest rates.

“Time will tell if this is a one-off or part of a real slowdown in the job market,” said Chris Larkin, of E*Trade, at Morgan Stanley. “Investors may have adapted to the idea of ​​the Fed waiting until September to cut interest rates, but that doesn’t mean they feel comfortable waiting indefinitely.”

Blackstone Inc. Chairman Jon Gray said economic growth will slow as persistent inflation weighs on the Fed’s ability to begin reducing borrowing costs.

“We see a slowdown in growth,” Gray said at the Macquarie Australia Conference in Sydney. “Central banks will be slow to cut rates because they don’t want to see a rise in inflation,” he said. “The Fed will be patient, it will have the opportunity to cut once this year,” he added.

If the economy is slowing, unemployment is rising, inflation is receding and the Fed is expected to cut rates, there will be plenty of buyers for US Treasury bonds and notes, according to Joe Kalish of Ned Davis Research.

“But make no mistake. When conditions change, prices can change too – and quickly!”

Kalish noted that bond buyers are now different from bond buyers during the quantitative easing era. Currently, buyers are price sensitive and the burden falls mainly on families, he added.

“There will always be a price to clear the market,” he noted. “So now we’re just negotiating the price.”

Corporate Highlights:

• Arm Holdings Plc gave a tepid revenue forecast for the fiscal year, raising concerns that the tech industry’s artificial intelligence spending spree is slowing.

• Gaming giant Roblox Corp. released a booking forecast that fell short of analysts’ estimates, the latest sign of widespread difficulties in the video game industry.

• will provide some of its upcoming artificial intelligence capabilities this year through data centers equipped with its own in-house processors, as part of a broad effort to infuse AI capabilities into its devices.

• Google parent Alphabet Inc. has been making progress in talks to acquire marketing software provider HubSpot Inc., according to people familiar with the matter.

• A 30-year-old Boeing Co. 737 skidded off the runway in the Senegalese capital Dakar, injuring 10 people, according to the country’s transport minister.

• Airbnb Inc. sank after the home rental company gave lackluster guidance for the second consecutive quarter, indicating that growth in travel spending will slow ahead of the peak summer season.

• Warner Bros. CEO David Zaslav has ordered his lieutenants to find additional cost-cutting opportunities in order to meet financial targets for the next two years, people with knowledge of the matter said.

• Robinhood Markets Inc. reported its second consecutive quarterly profit on Wednesday as higher interest rates and cryptocurrency trading drove revenue growth.

• Duolingo Inc. shares fell after the educational software provider’s quarterly report showed it had added new users at the slowest pace since the third quarter of 2022.

Main events this week:

• UK industrial production, GDP, Friday

• ECB publishes report of April policy meeting, Friday

• BOE Chief Economist Huw Pill Speaks on Friday

• US University of Michigan Consumer Sentiment Friday

• Chicago Fed President Austan Goolsbee Speaks Friday

Some of the main movements in the markets:

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• The S&P 500 was up 0.4% at 1:33 p.m. New York time

• The Nasdaq 100 rose 0.2%

• The Dow Jones Industrial Average rose 0.7%

• The MSCI World index rose 0.3%

Coins

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.3% to $1.0779

• The British Pound rose 0.2% to $1.2522

• The Japanese yen was little changed at 155.54 per dollar

Cryptocurrencies

• Bitcoin rose 0.8% to $62,047.87

• Ether rose 1.9% to $3,005.67

Titles

• The 10-year Treasury yield fell four basis points to 4.46%

• Germany’s 10-year yield rose three basis points to 2.50%

• Britain’s 10-year yield little changed at 4.14%

goods

• West Texas Intermediate crude rose 0.2% to $79.13 a barrel

• Spot gold rose 1.1% to $2,333.44 an ounce

This story was produced with help from Bloomberg Automation.

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