Wall Street saw another busy session of bond sales as issuers looked to borrow before key economic data later this week.

Treasuries were mixed after a US$42 billion auction of seven-year notes and a heavy slate of new corporate debt. Seven more issuers came forward to sell U.S. investment-grade bonds, building off Monday’s surge that saw the most deals in a single day so far this year.

Investors are contending with an erosion in expectations for how much the Federal Reserve will lower rates and an onslaught of new corporate issuance that has given yield-seeking investors ample alternatives. Traders no longer expect the Fed to cut rates by more than 75 basis points in 2024, bringing their view in line with what policymakers have indicated as the likeliest outcome.

“We continue to recommend investors act soon to lock in currently attractive bond yields,” said Solita Marcelli at UBS Global Wealth Management. “We particularly like the five-year duration segment of quality bonds, as this part of the yield curve offers the best combination of high yields, stability, and sensitivity to falling interest-rate expectations.”

Shorter-term Treasuries outperformed longer ones. The S&P 500 edged higher. Megacaps were mixed, with Apple Inc. up and Nvidia Corp. down. Macy’s Inc. climbed on plans to close almost a third of its namesake U.S. locations. Chevron Corp. and Hess Corp. slipped after Exxon Mobil Corp. said it’s considering a move that could break up the companies’ $53 billion merger and increase its share of Guyana’s giant offshore oil reserves. Bitcoin hovered near $57,000.

Traders refrained from making big bets ahead of Thursday’s inflation data and a parade of central bank speakers.

Fed Governor Michelle Bowman repeated her expectation that inflation will continue to decline further with interest rates held at their current level — but said it’s too soon to begin rate cuts — joining a raft of officials stressing they’re in no rush to lower borrowing costs.

The personal consumption expenditures price index will likely validate that stance and possibly further diminish market expectations for a rate cut in the coming months.

“Because market expectations for a Fed cut this quarter have already reset, we don’t anticipate strong volatility resulting from this data print,” said Lauren Goodwin at New York Life Investments. “However, since market activity is likely to be heavily driven by interest-rate expectations for the foreseeable future, we are watching closely for any surprises.”

To Yung-Yu Ma at BMO Wealth Management, while the equity market seems due for a pause and a consolidation of its recent gains, key PCE inflation data could be the next short-term catalyst for the market, as investors are looking for additional data to help confirm if inflation is truly re-accelerating.

“This is a ‘teflon’ stock market, which has shown a remarkable ability to shake off bad news and focus on what is positive,” he noted. “Nothing bad has been able to stick to the markets for long – such as upside surprises in inflation data and delayed Fed rate cut expectations.”

Calm stock markets have dampened demand for hedges tied to the S&P 500.

The three-month 25-delta put skew - a measure of the price of put options relative to equivalent calls - dropped to its lowest level since 2006, underscoring the limited demand for hedging against declines, and the fear of missing out on further rallies.

Barclays Plc was the latest bank to ramp up its year-end target on the S&P 500 — following increases from Goldman Sachs Group Inc., UBS Group AG, and Piper Sandler & Co. Strategists led by Venu Krishna boost forecast on US equity benchmark to 5,300 from 4,800.

“The U.S. economy continues to defy rates headwinds in 2024, much as mega​-​cap tech continues to defy even the most bullish earnings targets,” they wrote.

Indeed, the “Magnificent Seven” group of tech megacaps saw its average earnings per share rise 55 per cent in the fourth quarter compared to a year ago, according to data compiled by Bloomberg. Most of that group has helped power the Nasdaq 100 to a record high and its fourth consecutive monthly gain.

S&P 500 companies are headed for their highest quarterly earnings beat rate since the fourth quarter of 2021, according to data compiled by Bloomberg Intelligence strategists Gina Martin Adams and Wendy Soong. With more than 90 per cent of S&P 500 companies having reported results, the gauge is on track for 7.7 per cent year-on-year earnings per share growth, blowing past the pre-season forecast for 1.2 per cent.

To Kristina Hooper at Invesco, there is a perception that the US stock market is trading at very lofty valuations. While it is true that the S&P 500 is at an above-average price-to-earnings ratio, much of that is driven by just a few stocks, she noted.

“The good news is that this narrow group of stocks — dubbed the “Magnificent Seven” — have been meeting the high expectations set for them,” Hooper said. “Given their collective performance, valuations for the Magnificent Seven remain elevated compared to the broader US equity market, but their earnings growth is expected to be almost five times that of the remaining 493 stocks in the S&P 500 over the next years.”

“This isn’t ‘irrational exuberance’ — it’s more like ‘rational exuberance,’ she concluded.

Matt Maley at Miller Tabak has a word of caution.

He says that after the big run in equities, the market is showing signs of froth. While that doesn’t mean stocks will roll over in a big way soon, it is a reason for investors to avoid being too complacent.

“The stock market could easily continue to advance,” Maley noted. “However, we believe that it’s important for investors to remain nimble and to have a plan in place — in advance — for what they will do if some sort of significant ‘surprise’ creates a big increase in volatility at some point in the coming months.”

Corporate highlights:

• Viking Therapeutics Inc. more than doubled after results from a mid-stage trial suggested the biotech company may field a viable competitor to weight-loss drugs from Eli Lilly & Co. and Novo Nordisk A/S.
• Norwegian Cruise Line Holdings Ltd. climbed after issuing guidance ahead of expectations amid strong demand for its sailings.
• Warner Bros. Discovery Inc. ended its pursuit of a merger with rival Hollywood studio Paramount Global, CNBC reported, citing people familiar with the matter.
• Apple Inc. is cancelling a decadelong effort to build an electric car, according to people with knowledge of the matter, abandoning one of the most ambitious projects in the history of the company.
• American Airlines Group Inc. is closing in on an order for about 100 narrowbody jets split between Airbus SE and Boeing Co., with the European planemaker likely to secure the larger part of the commitment, according to people familiar with the talks.
• Capital One Financial Corp. predicted the time and expenses needed to fix Discover Financial Services’ regulatory challenges will be at the high end of what’s expected, or even beyond.
• ASM International NV projected revenue this quarter that fell far below market expectations, signaling that the Dutch chip-equipment maker is continuing to grapple with an uneven recovery in global demand for semiconductors.

Key events this week:

• Reserve Bank of New Zealand policy decision, Wednesday
• Eurozone economic confidence, consumer confidence, Wednesday
• U.S. wholesale inventories, GDP, Wednesday
• Fed’s Raphael Bostic, Susan Collins and John Williams speak, Wednesday
• G-20 finance ministers and central bank chiefs meet in Sao Paulo, Wednesday through Thursday
• Germany CPI, unemployment, Thursday
• U.S. consumer income, PCE deflator, initial jobless claims, Thursday
• Fed’s Austan Goolsbee, Raphael Bostic and Loretta Mester speak, Thursday
• China official PMI, Caixin manufacturing PMI, Friday
• Eurozone S&P Global Manufacturing PMI, CPI, unemployment, Friday
• BOE chief economist Huw Pill speaks, Friday
• US construction spending, ISM Manufacturing, University of Michigan consumer sentiment, Friday
• Fed’s Raphael Bostic and Mary Daly speak, Friday

Some of the main moves in markets:

Stocks

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

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0844
• The British pound was little changed at $1.2681
• The Japanese yen rose 0.1 per cent to 150.51 per dollar

Cryptocurrencies

• Bitcoin rose 4.3 per cent to $57,007.51
• Ether rose 2.2 per cent to $3,254.49

Bonds

• The yield on 10-year Treasuries advanced three basis points to 4.31 per cent
• Germany’s 10-year yield advanced two basis points to 2.46 per cent
• Britain’s 10-year yield advanced three basis points to 4.20 per cent

Commodities

• West Texas Intermediate crude rose 1.4 per cent to $78.65 a barrel
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.