The advance in stocks moderated on Friday, but the relatively smaller gains were enough to push the market toward another milestone.
A feat of multiple records in the world’s biggest equity market drove the S&P 500 to the historic 5,100 mark. Buoyed by the revolutionary artificial-intelligence technology and signs of economic resilience, stocks were also on track for another all-time high. After its big post-earnings advance, Nvidia Corp. is now set to become the first semiconductor firm with a $2 trillion valuation.
A rally in artificial intelligence stocks and optimism about economic growth at a time of easing monetary policy are the ingredients of a “magic sauce” to drive more gains in equity markets, according to Bank of America Corp.’s Michael Hartnett.
The strategist — who has taken a more neutral tone on stocks this year after remaining bearish through 2023 — said that a “baby bubble” in AI was “growing up.” A pickup in US business activity just as the Federal Reserve could start cutting interest rates also bodes well for the S&P 500 to continue to mark new highs, Hartnett said.
“Even though US equities have performed very well in recent months, we think the key market drivers will remain supportive,” said David Lefkowitz at UBS Global Wealth Management.
The S&P 500 extended this week’s advance. Nvidia climbed 2%, pushing its 2024 surge to more than 60% — the best performance by far in the American equity gauge. Not every big tech rose on Friday though. Apple Inc. and Tesla Inc. underperformed the market. Treasury 10-year yields fell three basis points to 4.29%.
The surge in Nvidia’s shares on Thursday left short sellers with about $3 billion in paper losses, according to an analysis by S3 Partners LLC — which called it an “AI generated nightmare” for bearish traders.
The mark-to-market losses are another blow for contrarians who argued that Nvidia’s sky-high valuations and speculative fever had all the makings of a market bubble about to pop. The chipmaker is the third-largest US short with $18.3 billion of shares that have been borrowed and sold, according to S3.
While the rally in US tech behemoths has sparked some concern about a potential bubble, the price action is aligned with earnings fundamentals, according to Barclays Plc strategists.
As long as stocks move in tandem with profit outlook, the “fear of missing out” will continue to prevail for the tech/AI space and investors will give the benefit of the doubt to lofty valuations, the team led by Emmanuel Cau wrote.
“There will likely be pullbacks and volatility over the next few months and we are supportive of the buy-the-dip mentality when it comes to big tech,” said Greg Marcus at UBS Private Wealth Management.
Now as hard as the S&P 500 rallied a day after Nvidia’s blowout results, the advance lacked an important component — strong participation of its constituents.
As investors cheered blowout results from Nvidia on Thursday — only 73% of the S&P 500’s members advanced. That’s the lowest participation for an up day of this magnitude since the immediate aftermath of the 2020 election, when the index gained 2.2% while only 47% of its members went up. Since then, 2% up days have been accompanied by an upward move in 92% of its stocks, on average, data compiled by Bloomberg show.
“Even though market breadth is still narrow, it’s wider than it was last year, with more and more stocks this year outperforming the S&P 500,” Marcus added.
To Matt Maley at Miller Tabak Co., while earnings out of Nvidia sparked another strong advance, it was disappointing to see a “very narrow” rally — which hasn’t hurt the market yet.
However, Maley points to a significant “valuation divergence” between Nvidia and the other AI-related stocks that has been developing for some time now.
“This should have important implications for how these stocks should be weighted in one’s portfolio — even when an inevitable correction takes place at some point in the future,” he noted.
Marcus at UBS says that if the Federal Reserve starts cutting interest rates, that will likely help spark wider breadth in the market.
“While we expect a continued resilience in tech stocks, we also expect a less dramatic — albeit still heavy — focus on the ‘Magnificent 7’,” Marcus added. “Rate cuts are also likely to help support the broader market.”
Corporate Highlights:
- Warner Bros. Discovery Inc. reported fourth quarter revenue and profits that fell short of Wall Street forecasts amid declining TV advertising sales and weakness at its studios business.
- Payments company Block Inc. reported results and first-quarter expectations that exceeded analysts’ estimates
- Booking Holdings Inc. gave a disappointing forecast for travel reservations and gross bookings, with the war in Israel and currency fluctuations weighing on results.
- Carvana Co. topped Wall Street’s profit expectations in the final months of 2023 and said it expects improved earnings this quarter as the used-car retailer defies the challenges of high interest rates and inflation.
- Viking Holdings Ltd. has filed confidentially for an initial public offering, as the travel industry continues to rebound from its pandemic-era slump.
- A lander from Intuitive Machines Inc. touched down on the moon on Thursday, making it the first private spacecraft to land on the lunar surface intact.
- Standard Chartered Plc pledged to hand back more money to shareholders as it outlined efforts to improve returns and reduce complexity at the emerging markets-focused lender.
- Pacific Investment Management Co. attracted about €20 billion ($21.6 billion) in third-party money in the first six weeks of 2024, approaching the level for the entire year before.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.3% as of 10:31 a.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average rose 0.5%
- The Stoxx Europe 600 rose 0.4%
- The MSCI World index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0821
- The British pound rose 0.2% to $1.2680
- The Japanese yen was little changed at 150.49 per dollar
Cryptocurrencies
- Bitcoin fell 1.4% to $50,942.01
- Ether fell 2% to $2,924.23
Bonds
- The yield on 10-year Treasuries declined three basis points to 4.30%
- Germany’s 10-year yield declined six basis points to 2.38%
- Britain’s 10-year yield declined four basis points to 4.06%
Commodities
- West Texas Intermediate crude fell 2.2% to $76.86 a barrel
- Spot gold rose 0.1% to $2,027.39 an ounce
