Closing Market Update S&P 500 Tops 5,000 Behind Tech Strength
schwab.com
Major index S&P 500 extended a record climb behind earnings strength and bullishness over tech, economy outlooks.
(Friday market close) The S&P 500® index (SPX) posted its third consecutive daily record close and settled above 5,000 for the first time ever Friday as big technology shares extended a march higher and investors remained buoyed by the outlook for the economy and interest rates.
Mega-cap tech and communications services companies continued to lead the upside, helping send the S&P 500 index to its 14th weekly gain out of the last 15. The Dow Jones Industrial Average® (DJI), which posted a record high Thursday, finished with a slight loss despite a 1.5% gain in member Microsoft (MSFT).
Investors head into the weekend with two key inflation reports ahead next week: the Labor Department's January Consumer Price Index (CPI) and Producer Price Index (PPI).
According to Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research, technology strength, fueled by escalating bullishness over artificial intelligence (AI), continued to buoy the market this week. Along with another heavy slate of earnings next week, monthly inflation updates also bear watching.
"Strong earnings reports, especially from the tech sector, appeared to be the biggest driver for the market's bullish momentum this week," said Peterson, citing Arm Holdings (ARM) and Palantir Technologies (PLTR) as examples. "The S&P 500 wouldn't be notching fresh highs this year without the performance of the technology sector."
Here's where the major benchmarks ended:
- The S&P 500 index rose 28.70 points (0.6%) to 5,026.61, up 1.4% for the week; the Dow Jones Industrial Average lost 54.64 points (0.1%) to 38,671.69, up 0.04% for the week; the Nasdaq Composite® (COMP) surged 196.95 points (1.3%) to 15,990.66, up 2.3% for the week.
- The 10-year Treasury note yield (TNX) rose less than 1 basis point to 4.175%.
- The Cboe Volatility Index® (VIX) rose 0.14 to 12.93.
Technology sector strength was highlighted by chipmakers, as the Philadelphia Semiconductor Index (SOX) gained 2%. Regional banks also ended the week on a firm note after slumping in recent days, and small-cap stocks also firmed. The small-cap Russell 2000® Index (RUT) jumped 1.5% Friday and ended the week with a gain of 2.4%, ending just below its high for the year.
In other markets, WTI crude oil (/CL) futures gained for the fifth straight day, completing a 7.2% gain for the week amid growing concern the Middle East conflict may disrupt supplies.
Stocks on the move
The following companies had stock price moves driven by analyst ratings, quarterly results, or other news:
- CleanSpark (CLSK) soared 33% after the bitcoin miner reported stronger-than-expected quarterly numbers.
- Cloudflare (NET) rallied almost 20% after the cloud services provider surpassed fourth-quarter expectations.
- Expedia Group (EXPE) tumbled 18% as weaker-than-expected air travel numbers overshadowed stronger-than-expected quarterly results.
- PepsiCo (PEP) fell 3.6% after the beverage and snack maker reported mixed quarterly numbers.
- Pinterest (PINS) sank 9.5% after the image-sharing company's profit forecast disappointed investors.
- Take-Two Interactive Software (TTWO) lost 8.7% after the video game maker's earnings fell just shy of expectations.
- United Airlines (UAL) added 1.7% after Evercore ISI upgraded the stock to "outperform" from "in-line" and raised its price target to $65 from $58, citing a likely shift in capital allocation.
Another heavy round of earnings awaits next week, with Dow member Coca-Cola (KO) expected to report results Tuesday, along with Airbnb (ANBN), Biogen (BIIB), Marriott International (MAR) the same day. Other major companies reporting next week include Applied Materials (AMAT), Cisco Systems (CSCO), Deere (DE), and Stellantis (STLA).
Schwab's Peterson noted that semiconductor and other tech companies are encouraging investor money flow aimed at capitalizing on the "AI secular growth story. As investors receive continued confirmation of the strength of the AI investment cycle, they increasingly seek to participate, which in turn, drives stock prices higher," he said.
There is a "valuation reset" happening for many of these AI-related stocks, but that raises the question of whether investors "are getting a little too exuberant." Technically "we are overbought in the AI areas of the market, but timing a potential correction is difficult, if not impossible, to do," Peterson explained.
CPI highlights busy data week
After a relatively light week of economic news, investors face a heavier calendar next week that includes the CPI and PPI releases, as well as monthly updates on Retail Sales and Industrial Production, both scheduled Thursday, followed by Housing Starts and Building Permits next Friday.
Next week's numbers, CPI and PPI in particular, will be of keen interest as the market seeks further confirmation that the economy's unexpected strength in 2023 carried forward into the new year while inflation pressures continued to ease.
Tuesday's CPI report is expected to show price pressures continued to moderate last month.
Overall CPI is seen rising 0.2% in January, matching a downwardly revised 0.2% gain in December, according to Trading Economics. The core CPI rate, which excludes food and energy prices, was expected to climb 0.3%, matching December's monthly gain.
Earlier Friday, the U.S. Labor Department released revisions to December's CPI, saying price growth was slower than it initially reported. Annualized change for fourth-quarter core CPI was the same as it was previously at 3.3%.
Slipping year-over-year CPI comparisons have also been encouraging, bolstering confidence that the Fed's aggressive rate hike campaign that began in March 2022 has mostly succeeded. Still, inflation remains above the central bank's 2% long-term target.
In December, the CPI core rate posted a 3.9% year-over-year gain, down from a 4% rise in November and the first sub-4% core rate increase since mid-2021.
Analysts caution, however, than any surprises in the inflation numbers could compel investors to alter expectations for the timing and magnitude of any Fed rate cuts this year. Market indicators suggest an initial Fed cut is most likely to happen in May or June, at the earliest. By contrast, early this year, investors pegged relatively high odds for a rate cut in March.
"With CPI and PPI, any kind of outsized move one direction or another could move the needle for Federal Reserve policy," Schwab Center for Financial Research analysts said in a report. "Probably not for the March meeting but maybe for the calculus around May or June."
Late Friday, traders priced almost 85% odds the fed fund target will remain unchanged at 5.25% to 5.5% following the March FOMC meeting, up from 36% a month ago, according to the CME FedWatch Tool. The market appears split on the outcome of the May meeting, with odds of a quarter-point cut currently about 51%.
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