(Bloomberg) — Asian shares are poised to rise after Wall Street stocks eked out small gains to close at fresh records as traders shrug off warnings the market has run too far, too fast.
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Australian stocks edged higher in early trading, while futures signaled small gains for Tokyo equities. Hong Kong shares could rise about 1% after Chinese Premier Li Qiang flagged more “forceful” measures to stabilize his country’s slumping stock market. Such concerns are in contrast to the US, where investors are weighing strong economic signals and prospects for corporate profits.
Wall Street shares are shaking off a rocky start to the year on bets the Federal Reserve will cut rates and the artificial-intelligence boom will keep fueling profit growth. The S&P 500 hovered near 4,850 on Monday, while Treasury 10-year yields declined two basis points to 4.10%. The dollar barely budged.
After the closing bell, United Airlines Holdings Inc. said profit this year will likely top analyst estimates despite a first-quarter loss. Earnings season kicks into high gear this week, with companies including Netflix Inc., Tesla Inc. and Intel Corp. due to report their numbers.
“The story is changing for bulls,” said David Donabedian at CIBC Private Wealth US. “Investor optimism had been driven by the belief there would be aggressive rate cuts by the Fed. Now investor belief has pivoted to view the economy as bullet-proof. No matter how high interest rates go, the economy will continue to glide right through.”
In Asia, focus remains on the post-pandemic economic malaise in China, after the mainland’s benchmark CSI 300 Index hit a five-year low on Monday. Despite Premier Li’s latest comment sparking some investor optimism, most are waiting for more details on what authorities are mulling.
The seemingly endless selloff in Chinese shares can be attributed to a range of factors from a deepening housing slump to stubborn deflationary pressures, as well as uncertainties about the trajectory of US interest rates. Chinese stocks listed in Hong Kong have also been rattled, with the Hang Seng China Enterprises Index falling 2.4% on Monday toward a level last seen almost two decades ago.
In Japan, the central bank is expected to keep its main monetary policy settings steady Tuesday. Attention will be focused on how Governor Kazuo Ueda assesses progress made toward achieving the sustainable inflation needed for ending the negative interest rate.
Last week’s record close for stocks in the US has pulled valuations back to the highs seen last July. But a closer look shows that the market isn’t as expensive as it appears, according to Citigroup Inc.’s Scott Chronert.
Gains in Apple Inc., Microsoft Corp., Nvidia Corp., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc. and Tesla have powered the resurgence on Wall Street. The equally weighted version of the S&P 500 strips out some of their outsized influence and results in a ratio of around 16 times forward earnings, a discount of 17% to the benchmark’s standard valuation.
“With AI set to remain the key theme driving global tech stocks again this year and the rest of the decade, we maintain our preference for the semiconductor and software sectors and see opportunities in those involved in memory and AI edge-computing,” said Solita Marcelli at UBS Global Wealth Management.
The Ned Davis Research Leading Indicator Model — based on 10 indicators that typically lead the S&P 500 — has already been flashing bullish for most of the past year. The majority of the components are price-based and include one on sentiment with two others on macroeconomics.
Although the model is just off its highs, with four of the seven bullish indicators starting to weaken including financials, volume demand and weekly new highs on the New York Stock Exchange, the key gauge still points to equity strength.
To Lisa Shalett at Morgan Stanley Wealth Management, with forward multiples already at historic peaks and earnings forecasts for 12 months forward ambitious, stock gains may stall in 2024 — as better earnings are met with lower valuation multiples, characteristic of a midcycle or soft-landing environment.
Even as the S&P 500 closed Friday at an all-time high, money managers and analysts are contending with data that signals US economic resilience and Fed officials who’ve pushed back against reducing interest rates too soon.
The latest warning for investors unleashing dovish monetary wagers across the board: Two thirds of Bloomberg Markets Live Pulse respondents said that betting on early monetary easing is the “most foolish” among popular trades heading into 2024.
“The push and pull between interest rates and the markets have been discussed ad nauseam, but looking back over the past two years, it has been the Fed’s actions that have led the markets, said Paul Nolte at Murphy & Sylvest Wealth Management. “Will the economy catch a chill if the Fed keeps rate cuts on ice? It will depend largely on the earnings season that gets into full swing this week.”
Corporate Highlights:
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Archer-Daniels-Midland Co. plunged after the US agricultural trading giant suspended its chief financial officer and cut its earnings outlook pending an investigation into its accounting practices.
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Sunoco LP, a US gas station owner, agreed to acquire pipeline and fuel storage company NuStar Energy LP for about $7.3 billion in a move to diversify its business and buy up a key part of its supply chain.
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Digital World Acquisition Corp., the blank-check firm seeking to take Donald Trump’s media company public, surged after Ron DeSantis dropped out of the 2024 US presidential race and endorsed Trump.
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Arkhouse Management Co. has asked Macy’s Inc. for access to more financial information after the US department store operator rejected a $5.8 billion takeover offer from the investment firm and Brigade Capital Management.
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US authorities are investigating B. Riley Financial Inc.’s deals with a key client who was linked to a securities fraud, and the use of his assets to help the investment bank obtain a loan from Nomura Holdings Inc., according to people familiar with the matter.
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Gilead Sciences Inc. slid after its drug Trodelvy failed to meet a key goal in a study of patients with advanced lung cancer.
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Scrutiny of Boeing Co.’s manufacturing quality expanded after federal regulators told airlines to check the door plugs on a second 737 model, where operators have also found issues with fasteners.
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Amer Sports Inc., the maker of Wilson tennis rackets and Salomon ski boots, is seeking to raise as much as $1.8 billion in what would be one of the year’s first major initial public offerings.
Key events this week:
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Japan BOJ rate decision, Tuesday.
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Eurozone consumer confidence, Tuesday.
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New Hampshire holds first-in-the-nation presidential primary, Tuesday.
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European Central Bank issues bank lending survey, Tuesday.
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Canada rate decision, Wednesday.
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Eurozone S&P Global Services & Manufacturing PMI, Wednesday.
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US S&P Global Services & Manufacturing PMI, Wednesday.
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Eurozone ECB rate decision, Thursday.
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Germany IFO business climate, Thursday.
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US GDP, initial jobless claims, durable goods, wholesale inventories, new home sales, Thursday.
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Japan Tokyo CPI, Friday.
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US personal income & spending, Friday.
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Bank of Japan issues minutes of policy meeting, Friday.
Some of the main moves in markets:
Stocks
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Hang Seng futures rose 1.1% as of 8:26 a.m. Tokyo time
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The S&P 500 index rose 0.2%; futures were little changed
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Australia’s S&P/ASX 200 rose 0.3%
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Nikkei 225 futures rose 0.1%
Currencies
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The Bloomberg Dollar Spot Index rose 0.1%
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The euro was unchanged at $1.0882
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The Japanese yen was little changed at 148.06 per dollar
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The offshore yuan was little changed at 7.1953 per dollar
Cryptocurrencies
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Bitcoin fell 0.2% to $39,725.32
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Ether fell 0.4% to $2,315.58
Bonds
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth.
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