Sandamp;P 500 Tops 5,200 to Extend This Month’s Rally: Markets Wrap

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“Time will tell whether it’s a one-off or part of a genuine cooldown in the labor market,” said Chris Larkin at E*Trade from Morgan Stanley. “Investors may have adjusted to the idea of the Fed waiting until September to cut interest rates, but that doesn’t mean they’re comfortable waiting indefinitely.”

The S&P 500 extended this month’s gains. Two-year yields dropped two basis points to 4.8%. Longer-dated bonds saw small losses ahead of a $25 billion sale of 30-year securities.

The pound wavered after the Bank of England sent its clearest signal yet that it was closing in on interest rate cuts, with Governor Andrew Bailey indicating markets were underpricing the pace of easing in the months ahead.

The S&P 500 already is beyond the average Wall Street forecast for year-end 2024, so investors understandably are wondering how much more room there is to run. For Leuthold Group’s Doug Ramsey, another 10% gain isn’t out of the question, at least statistically.

He analyzed 80 years of historical data on bull-market rallies, focusing on those that happened when unemployment was this low — below 4% — and the economic cycle this mature. Ramsey zoomed in on two periods that met those criteria — one when the S&P 500 posted its longest bull-market advance, the other when it clocked the biggest gain. The former came in a 26-month advance during the 1960s, while the latter was a 60% rally leading into the dot-com bust at the turn of the century.

If the current rally meets the prior records for length and height, the S&P 500 ends the year at 5,705.

The US equity benchmark has staged a rebound in May, and is now within 1% of its all-time high.

“Our sense is that the rebound has been unloved, largely because economic surprises have turned modestly negative, and we believe this is likely to lead to additional near-term upside,” said Chris Senyek at Wolfe Research. “Looking out to year end, we expect to remain constructive on the outlook.”

US Two-Year Yields Drop After Jobless Claims

That would be the case, Senyek noted, unless the economy shows signs of spilling into recession, or inflation is sticky enough that the market starts to price in a Fed hike.

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

Fed officials are keeping a close eye on labor demand and wage growth as they debate when it might be appropriate to lower interest rates. Data Friday showed US employers scaled back hiring in April and the unemployment rate unexpectedly rose, suggesting some cooling is underway in the labor market after a strong start to the year.

Blackstone Inc. President Jon Gray said economic growth will slow as stubborn inflation weighs on the Fed’s ability to begin lowering borrowing costs.

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

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

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

Kalish noted that the buyers of bonds today are different from the buyers of bonds during the quantitative-easing era. Today’s buyers are price-sensitive, and the burden has mostly fallen on households.

“There will always be a price to clear the market,” he noted. “So now we are just haggling over the price.”

Corporate Highlights:

Arm Holdings Plc gave a lukewarm revenue forecast for the fiscal year, raising concerns that the tech industry’s artificial intelligence spending spree is slowing.
Gaming giant Roblox Corp. reported a forecast for bookings that fell short of analysts’ estimates, the latest sign of widespread struggles in the video-game industry.
Google parent Alphabet Inc. has been progressing 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 of Dakar, injuring 10 people, according to the country’s transport minister.
Airbnb Inc. sank after the home-rental company gave lackluster guidance for a second straight quarter, indicating that growth in travel spending will slow ahead of the peak summer season.
Warner Bros. Discovery Inc. Chief Executive Officer David Zaslav has ordered his lieutenants to find additional opportunities for cost-cutting in order to hit financial targets for the next couple years, people with knowledge of the matter said.
Robinhood Markets Inc. posted its second straight quarterly profit Wednesday as higher interest rates and cryptocurrency trading fueled revenue growth.
Duolingo Inc. shares slumped after the education software provider’s quarterly report showed it had gained new users at the slowest rate since the third quarter of 2022.
Brookfield Corp. posted a 5% increase in distributable earnings, beating analysts’ estimates, as higher profits in its insurance business helped offset a soft patch for Brookfield Asset Management.
Banco Bilbao Vizcaya Argentaria SA took an €11.5 billion ($12.4 billion) bid for Banco de Sabadell SA directly to shareholders, a rare hostile move that the Spanish government said it opposed on concerns over job cuts and reduced competition.