US Stocks Gain on Embrace of ‘Goldilocks’ Mood: Markets Wrap

(Bloomberg) -- US stocks closed higher and Treasuries slid as investors picked through another batch of solid economic data to find different takeaways, even as worries mounted that it would force a hawkish response from the Federal Reserve.

The S&P 500 rose 0.3% after earlier dropping more than 0.75%. The Nasdaq 100 climbed 0.8%. Two-year Treasury yields held near 4.60%. The dollar advanced versus major peers.

Cisco Systems Inc. shares rose as much as 10% in late trading after it gave an upbeat revenue prediction that suggested that spending on tech infrastructure is holding up better than expected. 

US retail sales in January jumped by the most in almost two years, suggesting that strong consumer spending will keep prices elevated and increase pressure on the Fed to step up its efforts to tamp down inflation. Homebuilder sentiment rose in February by the most since mid-2020, as easing mortgage rates have boosted the housing market.

The data, coming one day after the hotter-than-expected US consumer price inflation report, sent Treasury yields higher on fears of more rate hikes. Yet equity investors found encouraging news in the same reports. 

“Retail sales for January were strong across the board, and together with the strong jobs report show a resilient economy,” Matt Peron, director of research at Janus Henderson Investors, wrote. “This notion is supporting the market’s current ‘Goldilocks’ mood where the economy is strong, but inflation is receding, albeit still too high.” 

“The Fed will read recent activity reports as supporting plans for additional interest rate increases in the first half of this year,” Bill Adams, chief economist at Comerica Bank, wrote. “Even so, the economy is generally performing better than expected so far in 2023, and inflation’s decline slowed at the turn of the year, too.” 

“Yesterday’s CPI report for January showed inflation continuing to moderate but slowly,” wrote Ed Yardeni, founder of his namesake research firm. “The new information isn’t likely to moderate Fed officials’ hawkishness, though, and doesn’t much change the economic outlook.”

“This morning, we had very, very strong retail sales — you saw rates go up. But stocks didn’t go down,” Zhiwei Ren, portfolio manager at Penn Mutual Asset Management, said in an interview. “And if you look under the surface, those nonprofitable techs are outperforming.”

“Everybody is trying to figure out whether this is going to be a once-in-a-lifetime soft landing or if it’s just taking longer before we get a panic recession,” Jerry Braakman, chief investment officer of First American Trust, said in an interview. “That’s why you’re seeing a lot of divergence between bulls and bears.”

Sam Stovall, chief investment strategist at CFRA, doesn’t see the Fed cutting rates this year. “That likelihood is getting smaller and smaller and right now — we’re more likely to see a rate cut beginning in the first half of 2024,” he said in an interview. 

The energy sector was the biggest drag on the S&P Wednesday. Oil futures dropped below $79 a barrel after EIA reported that crude inventories rose over 16 million barrels last week. Devon Energy Corp. fell more than 10% after fourth-quarter earnings missed estimates. 

Bitcoin rose to the highest level since August as regulatory worries faded. This spurred gains in cryptocurrency-exposed stocks.

Key events:

• US jobless claims, Australia unemployment, Cleveland Fed President Loretta Mester speaks at Global Interdependence Center event Thursday
• France CPI, Russia GDP Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.3% to the highest since Feb. 7 as of 4 p.m. New York time
• The Nasdaq 100 rose 0.8%, climbing for the third straight day, the longest winning streak since Feb. 2
• The Dow Jones Industrial Average rose 0.1%
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.6%, more than any closing gain since Feb. 6
• The euro fell 0.4% to $1.0690
• The British pound slipped 1.2%, more than any closing loss since Feb. 3
• The Japanese yen fell 0.7% to 134.12 per dollar

Cryptocurrencies

• Bitcoin surged 8.6%, more than any closing gain since Nov. 10
• Ether surged 7.1%, more than any closing gain since Nov. 10

Bonds

• The yield on 10-year Treasuries advanced six basis points to 3.80%
• Germany’s 10-year yield advanced four basis points to 2.48%
• Britain’s 10-year yield declined three basis points, more than any closing decline since Feb. 2

Commodities

• West Texas Intermediate crude fell 0.5% to $78.65 a barrel
• Gold futures fell 0.9% to $1,847.80 an ounce

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