Big Tech rally and US jobs report push S&P 500 to brink of bull market

The relentless rally in Big Tech, positioning in options and betting on a Federal Reserve pause after a mixed jobs report pushed stocks to the brink of a bull market.

An increase of about 1.5 percent for the S&P 500 extended the rise in benchmarks from October’s lows to nearly 20 percent.

A measure of big companies like Tesla and Apple saw its sixth straight week of gains the longest winning streak since July 2021.

Broadcom climbed after predicting sales linked to artificial intelligence will double this year.

As stocks rose, Wall Street’s fear gauge plummeted to pre-pandemic levels.

The Cboe Volatility Index, or VIX, fell below 15 from an average of 23 over the past year. Risk appetite also drove the Russell 2000 index of small caps, home to several regional banks, up about 3.5 percent.

The impressive run for stocks continues to drive retail investors into the market, said Mark Hackett, chief investment researcher at Nationwide.

Investors have been largely obsessed with the Fed, inflation and payrolls for the past three years, though the volatility around those reports has eased, reflecting a less emotional market. This is bullish, as less reactivity is a sign of a healthy market.

Andrew Brenner of NatAlliance Securities said the stock collapse has a lot to do with one thing: positioning.

Options traders were sidelined, Brenner said. We think they will come back next week, and the rally will pick up steam.

The inventory progress doesn’t mean the market isn’t facing headwinds, said Quincy Krosby, chief strategist at LPL Financial.

Among the risks, she cites the potential impact of the deluge of approximately $1 trillion in Treasury bills that will be auctioned off as the U.S. Department replenishes its general account.

That follows a debt curtailment deal that could lead to a significant undermining of financial market liquidity, she said.

The fact that the Fed has telegraphed that June 14 is not on the table for a rate hike no doubt reflects its concern about the potential for increased market volatility due to the disappearance of liquidity, Ms. Krosby said.

Still, today’s overall rally confirms that the market is not seeing an approaching recession, despite the incessant calls for a recession.

Signs of labor market weakening in May, despite a pick-up in hiring, could bolster arguments by Fed Chairman Jerome Powell and other officials that they should take more time to assess incoming data and the evolving outlook before revising rates. to increase.

Wall Street’s response to the latest jobs report showed bets that another Fed hike is likely, but it wouldn’t necessarily happen in June.

The two-year interest rate, which is more sensitive to impending central bank moves, rose 16 basis points to 4.5 percent.

About 25 basis points of tightening were fully priced in over the next two meetings for part of Friday’s trading session.

There were about nine basis points priced in for June, indicating a less than one-in-two chance that a hike will occur at this month’s meeting.

The US Federal Reserve is raising interest rates for the tenth time in a row

The key question now is, can they wait until July or will this monstrous payroll number lead to another burst of urgency? said Seema Shah, chief global strategist at Principal Asset Management.

Perhaps as unemployment rises and growth in median hourly wages slows, the details of the report may lead to July.

The Fed should be open to a July rate hike of half a percentage point if it chooses not to tighten this month, former Treasury Secretary Lawrence Summers said.

We are once again in a situation where the risks of the economy overheating are the main risks for the Fed to consider, he said.

Updated: June 03, 2023, 5:19 AM