Wall Street struggled to gain traction, with the bond market digesting another big sale of Treasuries and stocks hovering near records.

Bonds fell despite a strong US$25 billion auction that reduced jitters about an oversupply. Equities closed little changed after the S&P 500 briefly hit 5,000 for the first time. A sense of caution prevailed as investors positioned for Friday’s consumer-price index revisions thinking about what happened a year ago: The update was significant enough to cast doubt on overall inflation progress.

“There is some talk that tomorrow’s CPI revisions could throw cold water on the recent good inflation numbers — but this is a wonky number,” said Andrew Brenner at NatAlliance Securities. “We think the next move comes off the CPI number next Tuesday.”

Ahead of those figures, investors got a jobless claims reading that added to evidence of a still strong labor market and gave credence to the recent cautious rhetoric from central bank speakers. Federal Reserve Bank of Richmond President Thomas Barkin was the latest to reiterate policymakers have time to be patient about the timing of rate cuts. 

The S&P 500 closed at 4,997.91. As the earnings season rolled in, Walt Disney Co. and Arm Holdings Plc jumped on upbeat outlooks, while PayPal Holdings Inc. sank on an underwhelming forecast. Treasury 10-year yields rose three basis points to 4.15 per cent. Bitcoin topped $45,000. Oil rallied amid doubts over a potential cease-fire in the Israel-Hamas war.

To Larry Tentarelli at Blue Chip Daily Trend Report, a solid jobs market and a resilient consumer continue to bode well for the economy and should push back on immediate recession concerns. Chris Larkin at E*Trade from Morgan Stanley says the next few inflation reports may determine whether stocks will be able to keep setting new records in the near term.

“We remain cautious,” said Dan Wantrobski at Janney Montgomery Scott. “On this front, we note narrowing of breadth, ongoing divergences in momentum, overbought conditions in leadership areas, and sentiment that can approach extremes relatively quickly.”

From its March 2020 pandemic-low, the S&P 500 has more than doubled, with gains in the past year fueled by bets on a soft economic landing and optimism about the impact of artificial-intelligence over corporate earnings.

While U.S. stocks are now pricing in plenty of good news, UBS’s Chief Investment Office sees the potential for further gains in the event of a “Goldilocks” economic outcome.

“Our base case remains for a soft landing for the U.S. economy, with the S&P 500 ending the year around current levels,” said Solita Marcelli at UBS Global Wealth Management. “However, recent economic data have highlighted the potential for a period of continued stronger growth, tame inflation, and swifter monetary easing. In this event, we believe the S&P 500 has the potential to rise to around 5,300 this year.”

An index of sentiment among chief executive officers of U.S. companies has turned positive for the first time in two years, according to the Conference Board.

Stronger-than-expected earnings are leading companies to announce share buybacks at a blistering pace as 2024 gets going — a potentially crucial pillar of support for stocks already trading at all-time highs.

U.S. companies have announced $105 billion in planned share repurchases in the first seven days of February, surpassing the full-month tally in January. It’s the strongest start to a February ever for announced buybacks and the second-best start to a year after 2023, according to data compiled by Birinyi Associates Inc.

Meantime, a survey conducted by 22V Research shows that 56 per cent of the investors polled think economic growth will be stronger than consensus estimates in 2024. That’s up from 35 per cent two weeks ago. Recession odds are down to 7 per cent. The tally also showed that tech is the “most-popular long” for the rest of 2024.

Stocks have tended to rally after the first Fed rate cut, but the phase of the economic cycle matters, according to Ed Clissold at Ned Davis Research. The strongest performance has come during soft landings, while the weakest has come when the economy entered recession less than a year after the first cut.

“Growth has outperformed value after first cuts — especially during slow cycles,” Clissold wrote in a note entitled: “Dear Jay: move slowly. Sincerely, the bulls.”

Big tech — the group that’s powered the equity resurgence — is bringing in more cash than ever before, priming the group to return money to shareholders and potentially adding fuel to a rally that’s already sent most of the group into record territory.

The five biggest technology companies that have reported earnings so far — Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc. and Meta Platforms Inc. — generated a record $139.5 billion of combined cash from operations in the quarter that ended on Dec. 31, according to data compiled by Bloomberg.

At these levels, the equity market appears overbought — but the fact is that many traders don’t want to miss out on continued gains. That has prompted outsized interest in options contracts that provide upside exposure for minimal premium.

The premium in implied volatility of 3-month 10-delta calls to 40-delta calls hovers around its highest in a decade, as pointed out by Susquehanna International Group. That relationship signals added demand for call options implying higher gains relative to those seeking more modest advances. 

Increasingly, traders are turning to the cheap contracts to position for broad market advances without having to purchase pricey benchmarks.

Corporate Highlights:

• Walt Disney Co. reported better-than-expected earnings for its fiscal first quarter and issued an upbeat profit outlook for the year, giving Chief Executive Officer Bob Iger ammunition to deflect proxy challenges at its shareholder meeting this spring.
• Chip designer Arm Holdings Plc issued a surprisingly bullish earnings forecast, showing its push beyond smartphones is helping fuel growth.
• PayPal Holdings Inc. said it expects earnings to be flat this year as it continues to cut costs and streamline its operations.
• Harley-Davidson Inc. eked out a fourth-quarter profit that beat estimates as sales fell as the rugged American brand boost incentives to offset high-borrowing costs on slow-selling motorcycles.
• Under Armour Inc. raised its outlook for full-year earnings, with cost cuts in its turnaround effort making up for a continued decline in revenue.
• Philip Morris International Inc. forecast high single digit profit growth in 2024 as shipments of its Zyn nicotine pouches surge in the U.S., offsetting lower cigarette sales.
• Spirit Airlines Inc., fighting to preserve its acquisition by JetBlue Airways Corp., said revenue will increase this quarter more than analysts were expecting and that it has the liquidity needed to stand on its own even as concerns mount about its financial future.

Key events this week:

• U.S. CPI revisions, Friday
• Germany CPI, Friday
• President Joe Biden hosts German Chancellor Olaf Scholz at the White House, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 4 p.m. New York time
• The Nasdaq 100 rose 0.2 per cent
• The Dow Jones Industrial Average rose 0.1 per cent
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.2 per cent
• The euro was little changed at $1.0777
• The British pound was little changed at $1.2619
• The Japanese yen fell 0.7 per cent to 149.27 per dollar

Cryptocurrencies

• Bitcoin rose 2.8 per cent to $45,435.07
• Ether fell 0.3 per cent to $2,423.82

Bonds

• The yield on 10-year Treasuries advanced three basis points to 4.15 per cent
• Germany’s 10-year yield advanced four basis points to 2.35 per cent
• Britain’s 10-year yield advanced six basis points to 4.05 per cent

Commodities

• West Texas Intermediate crude rose 3.5 per cent to $76.45 a barrel
• Spot gold was little changed