The S&P 500 Breaks Through 5,000

The S&P 500 (Index: SPX) rose a little under 1.4% over its previous week’s close, breaking through the 5,000 level on Friday, 9 February 2024 and wrapping up the week at a new high of 5,026.61.

Much of that boost came on the strength of a rally in megacaps, which is to say the stocks of the companies with the largest market capitalizations in the U.S. stock market.

The move also coincides with a transition in how far into the future investors are focusing their attention. Investors have shifted their forward time horizon from 2024-Q1 to 2024-Q2. That matches the strengthening expectation the Federal Reserve will hold off on starting a series of rate cuts during the second quarter of 2024. As for why that expectation strengthened, it had a lot to do with Federal Reserve officials sending the message they are going to hold off cutting rates until later in 2024.

Here’s the latest update for the alternative futures chart, where we find the trajectory of the S&P 500 is consistent with investors focusing on 2024-Q2 in setting the level of the index.

The week came with a big political story in the United States, which broke on Thursday, 8 February 2024. The story is the U.S. Department of Justice’s announcement it would not file criminal charges against President Joe Biden for the willful mishandling of classified documents going back to his time as Vice-President during the Obama administration. The special prosecutor investigating the matter declined to file charges in part because of the President’s age and failing memory would make it difficult to obtain a conviction in a jury trial.

That announcement was followed with President Biden’s evening press conference, which has been described as “an all-time PR blunder” because it raised further questions of his mental acuity and fitness to continue in office.

We’re discussing the story to make a point that matters to investors. This is a political story that has a direct bearing on the future of the U.S. government. With the 2024 presidential election campaign well underway and setting up to be a rematch between Joe Biden and Donald Trump, it’s a story that can very much affect what investors expect for the future. If Biden steps aside, whether in running for reelection or in even finishing his current term as President, the outcome of that action will create new uncertainties for investors. Increased uncertainty has a negative effect on stock prices.

All this news broke well ahead of when markets opened on Friday, 9 February 2024, so investors had ample time to absorb its impact. The S&P 500 would rise 0.6% to break through the index’ 5,000 milestone and close at an all-time record high that day. For something many might think would have a negative effect, that effect would appear to be minimal.

That’s not because investors had somehow mysteriously already priced that new information into the market beforehand. Nor is it because investors are ecstatic at the prospect of a future without Biden as President. Nor is it because investors are rejecting what the DOJ’s report and the press conference revealed about President Biden. Historically speaking, unless changes in tax rates are involved, what politics contributes to stock prices is virtually indistiguishable from noise. Noise that gets easily lost among the more serious factors that drive stock prices.

Which is why we almost never feature political headlines when recapping the market-moving news headlines of the week that was, although we’re making an exception this week and are presenting three political headlines just to drive that point home. Here are the week’s headlines:

Monday, 5 February 2024

• Signs and portents for the U.S. economy:

• Oil slips as rate cut caution overshadows Mideast strikes
• US regional lenders’ commercial real estate exposure in spotlight after carnage

Fed minions claim they’re being prudent in setting timing for rate cuts in 2024:

• Powell says Fed can be ‘prudent’ in weighing rate cuts — CBS ’60 Minutes’
• Fed’s Bowman sees inflation falling, calls for caution on rate cuts
• Fed’s Kashkari: Strong economy means Fed has time to study data before rate cuts

Bigger trouble developing in China:

• China’s tumbling prices push some exporters to the brink

• Why China’s national team won’t save spiralling markets
• Exclusive: Chinese brokers restrict cross-border swaps as stocks plunge – sources

Job worries sour mood for Chinese heading home for holidays

China’s Jan services activity expands at slower pace – Caixin PMI

Job worries sour mood for Chinese heading home for holidays

Bigger stimulus developing in China:

• Distressed Chinese developers get project loan backing as Beijing ramps up support
• China’s Country Garden says over 30 projects have local government support

Some positive recovery signs in Eurozone:

• Euro zone economy showing some signs of recovery -PMI

Nasdaq, S&P 500, Dow slump and yields rise with Fed ‘likely overstaying their welcome’

Tuesday, 6 February 2024

• Signs and portents for the U.S. economy:

• Brent, US crude futures give up some gains on talk of Gaza ceasefire

• U.S. oil production seen flat until next year, easing glut concerns
• US natural gas slides to nine-month low as production rises, demand drops

New York Fed sees trouble in auto borrowing as overall debt level rises

Spate of job cuts continues unabated at Big Tech, media firms

Fed minions setting the table for rate cuts later in 2024:

• Fed’s Mester open to rate cuts if it’s clear inflation is easing further

Bigger bailout developing in China:

• China regulator announces more curbs on short-selling
• China stocks rebound sharply on renewed talk of official support

BOJ minions thinking about ending never-ending stimulus in 2024:

• BOJ on track for policy shift by April, helped by wage outlook

ECB minions follow Fed minions in pushing back on rate cut expectations:

• ECB’s Vujcic urges rate cut patience, sees ‘equilibrium’ higher than in past
• ECB is confident next move will be rate cut, de Cos says
• ECB must be patient with rate cuts, Schnabel tells FT

“Some” signs of economic rebound in Eurozone:

• Euro zone economy showing some signs of recovery -PMI

Nasdaq, S&P, Dow eke out gains as Fed speakers largely reiterate caution on rate cuts

• S&P 500 closes up, focus on earnings and US interest rates

Wednesday, 7 February 2024

• Signs and portents for the U.S. economy:

• Oil climbs on US fuel stocks draw, geopolitical tensions
• Yellen says commercial real estate losses may leave banks ‘quite stressed’

• Moody’s cuts NYCB ratings to junk, warns of more downgrades

Bigger trouble developing in China:

• Beijing’s butchers a glum bunch as Lunar New Year meat sales slow

JapanGov minion claims BOJ minions plan to end never-ending stimulus won’t mean stop in fight to end deflation:

• Japan can retain deflation-fighting mandate even if BOJ ends negative rates -govt official

S&P 500 closes just below historic 5,000 mark as tech stocks rally; Nasdaq, Dow also rise

Thursday, 8 February 2024

• Signs and portents for the U.S. economy:

• Oil up 3% on Gaza ceasefire rejection and US fuel stocks data
• US weekly jobless claims stay low despite high-profile layoff announcements
• Yellen sees more commercial real estate stress, losses, but no systemic banking risk

• NYCB gets third credit downgrade as CRE exposure worries spill to Europe

Fed minions are optimistic but not confident:

• Fed’s Kugler ‘optimistic’ on inflation, but says more ‘confidence’ needed
• Fed’s Barkin says he’s cautious about accuracy of recent economic data

• Fed’s Barkin: Need more time before supporting rate cuts

Fed’s Collins says rate cut could come later this year

• Fed’s Collins says her baseline expectation is 75 bps of rate cuts this year

Fed policy shift needs a farewell to ‘elevated’ inflation

Bigger trouble developing in China:

• China’s consumer prices suffer biggest fall since 2009 as deflation risks stalk economy

• China’s consumer prices fall 0.8% y/y, factory deflation persists

BOJ minions say end of never-ending stimulus to be slow, will stop taking so many risks:

• BOJ rules out rapid rate hikes, signals ending risky asset buying

Bigger trouble developing in Eurozone:

• Exclusive: German landlord TAG warns home prices could fall 30% from peak

ECB minions to stand by before doing anything about bigger developing trouble:

• ECB needs more inflation evidence before easing: policymakers
• ECB should wait to cut rates, then take a bet – Wunsch

S&P 500 ends just shy of 5,000 mark after touching milestone

Friday, 9 February 2024

• Signs and portents for the U.S. economy:

• Special Counsel’s Report Puts Biden’s Age and Memory in the Spotlight

• Biden’s ‘mental state’ in question after classified documents report and memory lapses
• Joe Biden’s ‘My Memory Is Fine’ Press Conference Was An All-Time PR Blunder

Exclusive: Cisco to cut thousands of jobs as it seeks to focus on high growth areas

Mixed US consumer price revisions leave slowing inflation trend intact

• Instant view: Revised US December CPI gives Fed a bit more breathing room

Oil settles up, notches weekly gain on tight supply, Middle East conflict

Fed minions say no need to hurry on interest rate cuts:

• Fed’s Logan: risks more balanced, no urgency on rate cuts

Bigger trouble, stimulus developing in China:

• As China woes mount, investment banks brace for more Asia job cuts
• China new bank loans in Jan hit record high on policy support

ECB minions get data indicating easing inflation in Eurozone:

• Euro zone wage growth to peak early in 2024, path further ahead unclear -new ECB tracker

S&P consolidates above 5,000 points for first time ever, Nasdaq adds +1%; Dow slips

• Megacaps rally pushes S&P 500 to first close above 5,000 milestone
• As S&P 500 breaches 5,000, its valuation hits lofty levels as well
• S&P 500 Q4 2023 earnings growth now seen at 9% year over year -LSEG
• Wall St Week Ahead: Market breadth suggests narrowing rally as S&P 500 hits records

The CME Group’s FedWatch Tool continues to project the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 1 May 2024 (2024-Q2). This date marks the anticipated beginning of a series of quarter point rate cuts that are expected to take place at six-to-twelve-week intervals through the end of 2024.

The Atlanta Fed’s GDPNow tool‘s latest estimate of real GDP growth for the first quarter of 2024 (2024-Q1) dropped to +3.4% from last week’s estimate of +4.2%.

Image credit: Microsoft Bing Image Creator. Prompt: “A Wall Street bull celebrating the S&P 500 rising above 5,000, with the number 5,000 and the letters S&P prominently displayed.”