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(Bloomberg) – Wall Street traders bracing for Wednesday’s Federal Reserve decision sent stocks higher on the back of gains in a handful of big tech stocks.
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Stocks wiped out losses after a rally in the tech mega-cap Magnificent Seven, which Bank of America called its “most crowded trade.” Nvidia rose on bets that its new chips will fuel a stock rally that has already added $1 trillion. Contribute to this year’s corporate value. Bond prices have stabilized after falling as traders pushed back the timeline for policy easing.
Goldman Sachs Group strategists led by Christian Muller Grisman say investors should buy stocks on the spur of the moment if they pull back against the backdrop of good economic growth and normalizing inflation.
“Equity momentum provides some support for broader risk appetite, but absent a significant interest rate shock in the U.S., we see the impact of a continued reversal as limited.”
The S&P 500 index rose to about 5,170, but volume was 20% below average last month. U.S. Treasuries edged higher as a $13 billion sale of 20-year bonds sparked strong demand. After abolishing the previous negative interest rate system, the yen declined as the Bank of Japan refrained from hinting at future interest rate hikes.
Wall Street is divided on whether the U.S. stock market’s meteoric rise is too much or too fast, and even Bank of America strategists are divided.
BofA’s Savita Subramanian says there is little evidence that the enthusiasm for artificial intelligence is pushing the market into bubble territory. Her view contradicts what Michael Hartnett, the firm’s chief investment strategist, said last week.
“There’s no widespread euphoria,” Subramanian said in a joint interview with Jill Carey Hall, the firm’s head of small- and mid-cap strategy, on Bloomberg TV. “The risk is outside of the public markets,” he added, adding that private credit and private equity and local banks are where credit risk is exploding.
Investors are divided on whether artificial intelligence stocks are in a bubble, with 40% saying yes and 45% saying no, according to a new survey of BofA fund managers.
Citigroup strategists led by Chris Montague said their bullish stance on U.S. stocks softened last week. They noted that while the S&P 500 and Nasdaq positioning remains net-long and moderately extended, there is less positioning risk for both indexes in their current configurations.
A survey conducted by 22V Research revealed that 56% of investors believe the next 10% increase in the S&P 500 index will be even higher. Additionally, the poll revealed that 37% expected a “risk-on” reaction to the Fed’s decision, 33% “risk-off” and 31% “negligible/mixed.” .
The Fed is expected to keep interest rates on hold for the fifth consecutive time at Wednesday’s meeting, and attention will turn to the central bank’s forecasts in the so-called dot plot.
A summary of economic forecasts will reveal whether the still-strong economic data gives officials reason to backtrack on their interest rate cuts, or whether prospects for three cuts this year are on track.
“The continued rise in yields and the dollar will depend critically on whether the Fed makes its hawkish case justified,” said Brown Brothers Harriman’s Win Hsin and Elias Haddad. Stated. “If Jerome Powell sticks to his hawkish script, the message will remain consistent and the market reaction will be limited. If he deviates from the script and takes a dovish stance, The market reaction will likely be very intense.”
Bank of America’s Mark Kavanagh said that if the Fed’s dot shows only two rate cuts in 2024, two-year Treasuries will fall by 10 basis points, the dollar will rise and risk assets will be “somewhat weaker.” “I will endure,” he said.
Kavanagh said in a Bloomberg TV interview on Tuesday that if the dots show BofA economists’ base case of three rate cuts, two-year Treasuries would rise by 5 basis points, the dollar would fall and risks would turn on. He said it would be.
The Fed is expected to begin detailed discussions this week on its balance sheet, including when and how the central bank will slow the pace at which excess money is drained from the financial system.
Since 2022, the Fed has been shrinking its balance sheet by maturing up to $60 billion in U.S. Treasuries and up to $35 billion in federal mortgage debt each month, a process known as quantitative tightening.
“In our view, commentary on the Fed’s balance sheet plans will be at least as important as statements on the possibility of rate cuts,” said Chris Seniek of Wolf Research. “Although we do not expect a formal announcement of QT tapering until the May meeting, we do expect clarity on the potential timing and pace of tapering.”
Naomi Fink of Nikko Asset Management said the pace of MBS outflows is expected to continue, as the Fed ultimately hopes to return to a Treasury-only portfolio, but the Fed may be slowing down its schedule. It has the potential to flexibly prolong QT.
“There is also a bias toward coupon securities, which means that the Fed has to increase its Treasury bill holdings over time relative to its coupon holdings, all else being equal, which increases the curve’s long-term “They argue that support for the edges is waning,” Fink said. .
Company highlights:
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Cryptocurrency stocks fell as Bitcoin extended its decline following record daily outflows into Bitcoin from the world’s largest exchange-traded funds (ETFs).
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MicroStrategy Inc. has made its second multi-million dollar Bitcoin purchase in just over a week, increasing its holdings to more than 1% of all future cryptocurrencies.
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Nvidia Corp. CEO Jensen Huang said the variety of chips and software the company produces helps it capture a huge portion of global spending on data center equipment. He said he was in a favorable position.
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According to people familiar with the matter, Super Microcomputer has postponed the planned sale price of 2 million shares until after the New York market closes.
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For the first time in nearly three years, Michael Dell is unloading his shares in the computer company that bears his name, as Dell Technologies’ stock soars on optimism about artificial intelligence.
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Boeing Co. is considering selling at least two of its defense businesses as the beleaguered aircraft maker weathers its biggest crisis in years.
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PepsiCo Inc. has reached a deal to replace rival Coca-Cola Co. as the nation’s largest chain’s beverage supplier, exclusively supplying beverages at all Subway sandwich shops in the United States.
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Chevron Corp.’s talks with Exxon Mobil Corp. and China’s Canuk Corp. over the rich oil fields off Guyana’s coast ended “abruptly” several weeks ago, CEO Mike Wirth said.
This week’s main events:
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Eurozone consumer confidence Wednesday
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Fed interest rate decisions.Chairman Jerome Powell will hold a press conference on Wednesday
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Reddit IPO Wednesday
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ECB’s Christine Lagarde speaks on Wednesday
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Eurozone S&P Global Services PMI, S&P Global Manufacturing PMI, Thursday
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Bank of England interest rate decision Thursday
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U.S. Conference Board Leading Index, Existing Home Sales, New Unemployment Insurance Claims, Thursday
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Nike, FedEx earnings, Thursday
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Japan CPI, Friday
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Germany IFO Business Environment, Friday
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Atlanta Fed President Rafael Bostic speaks on Friday
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ECB’s Robert Holzmann and Philip Lane speak on Friday
The main movements in the market are:
stock
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As of 2:29 p.m. New York time, the S&P 500 was up 0.4%.
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Nasdaq 100 rose 0.2%
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The Dow Jones Industrial Average rose 0.6%.
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MSCI World Index rose 0.2%
currency
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Bloomberg Dollar Spot Index rose 0.2%
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The euro was almost unchanged at $1.0864.
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The British pound was almost unchanged at $1.2725.
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The Japanese yen fell 1.2% to 150.90 yen to the dollar.
cryptocurrency
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Bitcoin fell 3.8% to $64,775.13.
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Ether fell 5.7% to $3,307.5.
bond
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The 10-year Treasury yield fell 2 basis points to 4.30%.
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Germany’s 10-year bond yield fell 1 basis point to 2.45%.
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UK 10-year bond yields fell 3 basis points to 4.06%.
merchandise
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West Texas Intermediate crude rose 0.9% to $83.47 per barrel.
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Spot gold fell 0.2% to $2,156.43 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Farah Elbahrawy, Ye Xie, Michael Mackenzie, Alexandra Harris, and Jessica Menton.
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