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

(Bloomberg) — The stock market headed toward its highest level in a month, adding to a rebound that’s been fueled by speculation the Federal Reserve will cut rates this year.

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Equities rose as a jump in jobless claims reinforced bets on Fed policy easing — and extended gains after a $25 billion sale of 30-year bonds saw decent demand. The S&P 500 topped 5,200 — though trading volume was 20% below the average of the past 30 days. Gains in stocks have also been attributed to Commodity Trading Advisors — who surf momentum — being modeled to buy shares this week.

“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.”

To Doug Ramsey at Leuthold, another 10% gain in the S&P 500 isn’t out of the question, at least statistically. He analyzed 80 years of data on bull-market rallies, focusing on those that happened when unemployment was this low and the economic cycle this mature. If the current rally meets the prior records for length and height, the S&P 500 would end the year at 5,705.

The S&P 500 traded less than 1% away from its all-time high. Megacaps were mixed, with Amazon.com Inc. up and Nvidia Corp. down. The yield on 10-year Treasuries declined three basis points to 4.47%

The pound wavered as Bank of England Chief Economist Huw Pill said the central bank is “not quite there yet” on rate cuts despite growing confidence that it can soon begin loosening policy.

Senyek at Wolfe Research noted that he’d remain constructive in equities 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.

Initial applications for US unemployment benefits rose last week to the highest level since August, topping estimates. 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.

“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.”

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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 are now different from the buyers of bonds during the quantitative-easing era. Currently, buyers are price-sensitive, and the burden has mostly fallen on households, he added.

“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.

Key events this week:

• UK industrial production, GDP, Friday

• ECB publishes account of April policy meeting, Friday

• BOE Chief Economist Huw Pill speaks, Friday

• US University of Michigan consumer sentiment, Friday

• Chicago Fed President Austan Goolsbee speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.4% as of 1:12 p.m. New York time

• The Nasdaq 100 rose 0.2%

• The Dow Jones Industrial Average rose 0.6%

• The MSCI World index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.3% to $1.0778

• The British pound rose 0.2% to $1.2521

• The Japanese yen was little changed at 155.57 per dollar

Cryptocurrencies

• Bitcoin rose 0.6% to $61,968.15

• Ether rose 1.6% to $2,999.29

Bonds

• The yield on 10-year Treasuries declined three basis points to 4.47%

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

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

Commodities

• West Texas Intermediate crude rose 0.3% to $79.19 a barrel

• Spot gold rose 1% to $2,331.90 an ounce

This story was produced with the assistance of Bloomberg Automation.

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