(Bloomberg) — Despite gains in tech stocks, the rally in stocks subsided as banks dragged down the broader market. Bitcoin fell after reports that federal investigators are investigating the cryptocurrency company Tether.
The S&P 500 index rose nearly 1% before closing little changed. Banks were hurt, with New York Community Bancorp falling 8.3% on the worsening outlook. Goldman Sachs Group Inc. fell 2.3% and JPMorgan Chase & Co. fell 1.2%. Cryptocurrency stocks fell after the Wall Street Journal reported that the United States is investigating Tether for allegedly violating sanctions and anti-money laundering rules. The Magnificent Seven's megacap numbers recorded their highest consecutive jump since February. U.S. Treasuries ended a turbulent week with modest moves amid widespread caution ahead of major events.
As earnings season approaches, traders looked for clues about the extent of the Federal Reserve's interest rate cuts as they prepare for the U.S. presidential election and key economic data, including next week's jobs report.
“Investors remain very cautious as we head into a critical few weeks,” said Deutsche Bank's Henry Allen. “That makes us reluctant to push the rally further before these points are clear, all of which will play a key role in shaping our outlook for next year.”
The S&P 500 index had its weakest week since early September. The Nasdaq 100 rose 0.6% on Friday. The Dow Jones Industrial Average fell 0.6%. The KBW Bank Index fell 1.4%. The “Magnificent Seven'' gauge rose 1.3%.
Bitcoin fell 2%. The yield on the 10-year US Treasury note rose 3 basis points to 4.24%. Oil prices rose as traders focused on the risk of escalating conflict in the Middle East and a flood of other potentially important market drivers.
Five of the MagSeven companies will report earnings next week, with Alphabet Inc., Metaplatforms Inc. and Amazon.com Inc. expected to see double-digit profit growth driven by advertising spending. Apple Inc. could benefit from sales of its latest iPhone in China, while Microsoft Inc. could use the earnings report to address concerns that it is lagging behind rivals in artificial intelligence. be.
“These reports are likely to be important in shaping how investors view earnings season as a whole,” said Anthony Saglimbene of Ameriprise. “As long as fundamentals remain strong, the bull market will continue to ride the ups and downs of short-term sentiment.”
Big tech has driven much of the stock market's gains this year, but it suffered a setback last quarter as the Federal Reserve cut interest rates for the first time since 2020, propping up sectors such as financials and utilities.
The latest Bloomberg Markets Live Pulse survey, released earlier this week, showed participants expect tech giants to take the lead again. A combined 75% expect 'The Magnificent Seven' to outperform or match the rest of the market this quarter. One reason investors remain bullish is that large technology companies still account for most of the S&P 500's earnings growth.
“Expectations for the next few quarters remain in favor of technology driving the earnings growth bus, with 'Mag7' clearly driving technology earnings,” said Nancy Tengler of Laffer Tengler Investments.
Ido Caspi of Global I expect it to be a huge success.” See further evidence of generative AI moving along its growth curve and continuing to move from experimentation to widespread monetization. ”
One of the events that will be closely watched by tech stock watchers is Nvidia's earnings results in November. The company's last report sent its stock price down in the days that followed. This time, the largest group of Markets Live Pulse survey respondents, 45%, think the results will boost stock prices. Nvidia is a symbol of the AI technology boom, with its stock nearly tripling this year.
“Earnings season is heating up, with updates on big tech and artificial intelligence spending expected to be released soon,” said David Rout of Abound Financial. “This quarter has been a golden opportunity for big tech companies, as investors have grown impatient with AI spending that may or may not yield additional returns. It could lead to a backlash.”
From a fundamental perspective, sales growth for the “big three” (Nvidia, Microsoft, and Apple) is expected to lag behind the rest of the technology industry, but will accelerate toward the end of 2025 and outpace the rest of the industry. is expected to slow down. Ryan Grabinski of Strategas Securities says:
“However, the expected acceleration in net income for the 'big three' group is likely to maintain bids on these stocks relative to other stocks in the index,” he noted. .
Grabinski also said that perhaps most interesting is that the margin expansion expected to occur in the technology sector is less concentrated in the “big three.” In fact, their contribution is expected to remain flat at around 45% until the end of 2025, he noted.
Most of the S&P 500's record highs this year were recorded when the VIX index was low, but the highs recorded in recent weeks have been accompanied by increased price volatility. This isn't necessarily something to worry about.
“Periods of increased volatility in bull markets are not necessarily a cause for concern, but rather indicate a maturing bull market,” Tier 1 Alpha strategists wrote.
Risk assets are still in the midst of a strong year-end rally that is consistent with the S&P 500's 6,200 target, said Evercore's Rich Ross. The gauge ended Friday near 5,808.
He noted that progress will be driven by bullish breadth expansion across “Big Tech, Banks, Bullion, and Bitcoin” and will be set against the backdrop of Goldilocks macros.
On the economic front, Friday's data showed U.S. consumer sentiment rose to a six-month high in October as households became more optimistic about purchasing conditions. They expect prices to rise at an annual rate of 2.7% over the next year, unchanged from last month. Additionally, costs are expected to rise by an average of 3% over the next five to 10 years, down from 3.1% last month.
“This is certainly good news for Jerome Powell & Company,” said Jeff Roach of LPL Financial. “Consumers are confident that inflation is easing. Investors look forward to next Friday's jobs announcement as the Fed looks to stick to a soft landing.”
Treasuries traders are coming off a tumultuous week in which measures of bond market volatility rose to year-to-date highs, signaling more turmoil to come.
This week's back-and-forth suggests even more volatility in the coming days as the U.S. bond market must navigate a myriad of events, from key jobs data to the U.S. presidential election to the Federal Reserve meeting. . The ICE BofA Move Index, which tracks expected changes in U.S. Treasuries next month, rose to its highest level this year on Tuesday.
According to Anna Wong of Bloomberg Economics, October's employment report is likely to be negative for the first time in about four years. While analysts may downplay weakness due to temporary weather effects, cyclical factors will also play an important role, he said.
“We expect employment growth in October to be revised downward to 120,000 and the unemployment rate to stabilize,” economists at BNP Paribas said. “Given the negative impact of the storms and strikes, we expect Fed officials to scrutinize the weak numbers.”
“However, if this report proves surprisingly strong on all important dimensions, it will further fuel rumors of a Fed pause as early as December. “Nonetheless, a near-term shift may be difficult given the evolution of inflation and the Fed's consensus view that policy rates remain restrictive.”
Company highlights:
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Donald Trump's social media business has more than tripled in the five weeks since bottoming out after the end of a lockup period that prevented insiders from selling stock.
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Capri Holdings fell sharply after a federal judge blocked Tapestry's $8.5 billion takeover plan, but Tapestry rebounded.
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Boeing Co. is considering selling its space division as the troubled aircraft maker's new leader looks to streamline and focus on its core business, The Wall Street Journal reports.
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Apple was downgraded to underweight by KeyBanc Capital Markets, which cast doubt on the company's high growth expectations.
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Capital One Financial Corp. posted a profit that beat Wall Street expectations due to strong performance in its credit card and auto financing businesses.
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Centene Inc. soared after the health insurer's third-quarter profit beat Wall Street expectations, reassuring investors bracing for a tough quarter.
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Deckers Outdoor Co. rebounded after the maker of Hoka running shoes and UGG boots posted sales that beat the average analyst estimate, boosting its full-year sales forecast.
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Western Digital Corp. reported adjusted first-quarter profit that beat expectations. Analysts say the company's NAND flash memory division is performing better than expected.
The main movements in the market are:
stock
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The S&P 500 was little changed as of 4 p.m. New York time.
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Nasdaq 100 rose 0.6%
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The Dow Jones Industrial Average fell 0.6%.
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MSCI World Index falls 0.1%
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KBW Bank Index fell 1.4%
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Bloomberg Magnificent 7 Total Return Index rose 1.3%
currency
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Bloomberg Dollar Spot Index rose 0.3%
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The euro fell 0.3% to $1.0796.
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The British pound fell 0.1% to $1.2960.
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The Japanese yen fell 0.3% to 152.24 yen to the dollar.
cryptocurrency
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Bitcoin fell 2% to $66,773.01.
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Ether fell 2.5% to $2,473.72.
bond
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The 10-year Treasury yield rose 3 basis points to 4.24%.
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Germany's 10-year bond yield rose 3 basis points to 2.29%.
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UK 10-year bond yields remained unchanged at 4.23%.
merchandise
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West Texas Intermediate crude rose 2.1% to $71.67 per barrel.
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Spot gold rose 0.2% to $2,742.86 an ounce.
This article was produced in partnership with Bloomberg Automation.
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