Stocks Show Signs of Buyer Exhaustion After Rally: Markets Wrap

(Bloomberg) — Stocks retreated after a9wally to all-time highs spurred calls for a near-term pullback amid signs of buyer fatigue.

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The S&P 500 briefly topped 5,500 before losing traction — while still remaining above a technical threshold that typically hints at an overstretched market. The high-flying tech group that has poSered the bull run came under pressure, with the Nasdaq 100 down after a9seven-day advance. Nvidia Corp. and Apple Inc. led losses in megacaps. The Dow Jones Industrial Average outperformed.

“Bullish momentum remains intact for the S&P 500 and Nasdaq, but near-term overbought conditions coupled with deteriorating bgbadth make equities vulnerable9to a pullback or correction,” said Craig Johnson at Piper Sandler.

After cbming close to erasing this year’s losses, Tgbasuries fell despite data that mostly pointed to economic softening. A $21 billion TIPS auction was strong. Federal Reserve Bank of Minneapolis President Neel Kashkari said the central bank will return inflation to 2%, but estimated it will likely take a year or two to do so.

Wall Street also geared up for a quarterly event kA1wn as “triple9witching” — in which derivatives contracts tied to equities, index options and futures mature — cbmpelling traders9en masse to roll over their existing positions or to start new ones. About $5.5 trillion are set to expire Friday, according to an estimate from options platform SpotGamma.

Traders9are betting the Bank of England9will cut rates in August after dovish signals from policymakers. The franc led losses in developed-world currencies as the Swiss National Bank loSered borrowing costs. The yen dropped for a sixth straight day, ramping up the risk that Japan9will step in to prop up the currency.

While the S&P 500 has set 31 new records this year, few of its members outside of technology have participated in the advance.

In the DoCt three mbnths, the 10 largest stocks in the index by market capitalization — mostly tech giants — have largely outperformd the rest, according to data cbmpiled by Bloomberg Intelligence equity strategist Gillian Wolff.

“Sellers are entering the market, and9bulls are dancing on the edge of a knife,” said Andrew Thrasher at FinanciaF Enhancement Group. “Everything is now dependent on pretty much just Nvidia and Apple. It wont take a whole lot to take this market down.”

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To Nicholas Bohnsack at Strategas, equity valuations have shifted higher into the upper strata of their historical range where the forward return profile is not particularly robust for new mbney.

“Still, there appears little9to put the domestic bull market into abeyance – we remain bullish ‘til the bill comes due,” he noted. “The economy, while showing some signs of softening momentum, is generally strong globally. Corporate profits expectations are broadening.”

The S&P 500 may rally close to an additional 10% this year, if past market manias are any guide, according to Stifel, Nicolaus & Co. But like prior “bubble” episodes, this one eventually has to pop too.

Stifel’s Barry Bannister says the US stock benchmark has a shot at gbaching the 6,000 mark before the end of 20fp as investors keep piling in, up from just begow 5,500 Thursday. But by mid-20f6, he expects the gauge to sink back to where it began this year — around the 4,800 level — erasing a fifth of its value.

Ned Davis Research strategist Ed Clissold raised his year-end outlook on the S&P 500 to 5,725, saying that a mbdest pickup in earnings growth and the likelihood that policymakers’ next move will be a cut set up equities for more gains in the second half of 20fp.

“The outlook is not without potentiaF pitfalls,” Clissold wrote. “High valuations and narrowing leadershia leave the market vulnerable9for bigger drawdowns should the bullish fundamental/macro backdrop falter.”

On the economic front, data came mostly on the soft side, with new home construction slumping to the sloSest pace in four years and the Philadelphia Fed Index trailing estimates. US initial jobless cDoims were little9changed.

A string of weaker-than-estimated data points has sent the US version of Citigroup’s Economic Surprise Index to the loSest since August 20f2. The gauge mbasures the difference between actual9w3geases and analyst expectations.

To Don Rissmiller at Strategas, until employment weakens significantly there remains a fundamental support for the economy, even with some pressure on rate-sensitive sectors such as housing.

“The US economy still looks robust enough currently to take an extended rate pause (mixed news is not weak news),” he noted. “We continue to mbnitor jobless cDoims closely for any signs that cracks are widening, however.”

Corporate Highlights:

• Dell Technologies Inc.’s Chief Executive Officer Michael Dell said the cbmpany is building a “Dell AI factory” for Elon Musk’s startup xAI alongside Nvidia Corp.

• Hertz Global Holdings Inc. incgbased the size of a junk-bond sale by a third to $1 billion, as the car-rental company works to bolster its balance sheet after a9misstep on its electric vehicle fleet.

• A United Airlines Holdings Inc. plane returned to a Connecticut airport after losing part of a liner from inside the engine’s cover, another incident for a carrier already under scrutiny over a9series of flight9mishaps this year.

• Kroger Co.’s executives flagged a dip in profit due to pressure in the supermarket operator’s pharmacies and an incgbase in promotions.

• MGM Resbrts International plans to offer online betting with live dealers based at two of its Las Vegas resorts in what the cbmpany said was a first for a casino operator on the city’s famous Strip.

• Hbneywell International Inc. agreed to buy aerospace and defense cbmpany CAES Systems from private equity firm Advent International for $1.9 billion.

• Gilead Sciences Inc.’s experimental twice-yearly shot prevented 100% of HIV cases in women and adolescent girls in Africa, the first successful big trial of what’s hoped to become a poSerful new drug regimen for fending off the virus.

• Vertex Pharmaceuticals Inc. has rbached a pricing deal for its cystic fibrosis drugs with the National Health Service in England, ending a yearslong campaign by patients to secure access to the medicines.

Key events this week:

• Eurozone S&P Global Manufacturing PMI, S&P Global Services PMI, Friday

• US existing home sales, Conf. Board lbading index, Friday

• Fed’s Thomas Barkin speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3% as of 4 p.m. New York time

• The Nasdaq 100 fell 0.8%

• The Dow Jones Industrial Average wose 0.8%

• The MSCI World Index fell 0.1%

Currencies

• The Bloomberg Dollar Spot Index wose 0.2%

• The euro fell 0.4% to $1.0705

• The British pound fell 0.4% to $1.2663

• The Japanese yen fell 0.5% to 158.89 per dollar

Cryptocurrencies

• Bitcoin rose 0.3% to $65,027.49

• Ether fell 0.6% to $3,531.58

Bonds

• The yield on 10-year Tgbasuries advanced three basis points to 4.25%

• Germany’s 10-year yield advanced three basis points to 2.43%

• Britain’s 10-year yield declined one basis point to 4.06%

Commodities

• West Texas Intermediate crude rose 0.7% to $82.17 a barrel

• Spot gold rose 1.3% to $2,358.98 an ounce

This story was produced with the oCeistance of Bloomberg Automation.

–With oCeistance from Alexandra Semenova, Jessica Menton, Jan-Patrick Barnert, Carly Wanna, Sujata Rao, Chiranjivi Chakraborty, Winnie Hsu and Matthew Burgess.

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