S&P 5000 Busts Through the Barrier

And it does this as key Treasury yields also burst to make 2024 highs.

Photo by K. Mitch Hodge on Unsplash

The S&P was a bronco buster today! It didn’t just poke its nose through what could have been a formidable ceiling of resistance to sniff and then fade, it busted a hole clean through and stood on top of its former short-lived ceiling. Market gurus are saying it has plenty of momentum left to go. In doing so, it accomplished a few notable things besides kicking higher than 5,000 level.

It notched its fifth straight weekly gain—not terribly remarkable, but a strong rally—and its 14th winning week out of fifteen. It did that with only one down week since the start of November when Papa Powell set the market on fire by saying the Fed might turn down rates sooner than anyone thought if the market kept doing the Fed’s tightening for it. Of course, that exact comment is exactly the thing that let the rowdy market out of the gate to make sure it did not keep doing the Fed’s tightening for it but undid all that it had done. So, Powell has now returned, if not to his “higher for longer” theme, to “high for longer than you mistakenly came to believe.”

That return to some hawkishness in his voice and in other Fed voices drove maverick bonds back in the right direction, but had no calming effect on high-kicking stocks. Thus, we see that key yields on US Treasuries have gone up, as of today, to a new high for 2024.

The market mavens are euphoric about today’s S&P major record:

“At the end of the day, we’re still seeing whopping good news on an economic front, and the market is reacting to that,” said Dana D’Auria, co-chief investment officer at Envestnet. “The longer that story plays out, the more likely it seems to the market that we actually are sticking a landing here.”

Among the S&P’s notable accomplishments since Powell mistakenly kicked a spur into its flank by thinking the market would not undo all of its tightening if he gave the hyper crowd even a trace of what they were hoping for, is the following: Euphoria is so extreme that the market climbed from its last major mile marker of 4,000 to the new 5,000 goal faster than any 1000-point rise in its history. Of course, on a percentage bases from where it stood, 1,000 points would seem an easier climb than when it rose from 3,000 to 4,000 (a 25% gain v. a 33% gain).

With no tantalizing target of this kind, the Dow did not share the enthusiasm seen in the S&P and failed to close the week with a rise. And, of course, when stocks break through a major barrier like this, they tend to settle down below it for awhile after. Still, with euphoria so extreme, it may just stampede on up until it stampedes over a cliff.

As a reminder, it also took the S&P a full year to recover to the point from which it began its big crash at the start of January 2022 after a prior period of euphoria. It crashed all of 22 and rose on and off through 2023 to finally get back to its former top near the end of 2023. So, that was two years with no gain. There is no question, then, that it experienced plenty of trouble from Powell’s original tightening; and, in fact, most of its recovery only happened after Powell breathed out his hope that he could lower rates earlier if the market did as it didn’t and kept the financial world tight. It recovered half of its losses in just the last three months of 2022.

More cold water on rate cuts

While all this excitement was happening (and the champagne bottles will be popping this evening), Dallas Federal Reserve Bank President Lorie Logan issued a reminder that any hope of a March pivot was off the table, but the market clearly shrugged her off:

Dallas Federal Reserve Bank President Lorie Logan on Friday said she is in no rush to cut interest rates, and while there has been "tremendous progress" on bringing down inflation, she wants more data to confirm the progress is durable.    "The risks that I'm seeing in the economy are becoming more in balance, but I do think we need to take time here to continue to look at the data," she said at the Tarrant Transportation Summit in Hurst, Texas…. "I'm really not seeing any urgency to make any additional adjustments at this time," she said, adding that the labor market is still tight.”

It's a refrain that many of Logan's colleagues - including fellow hawks like Richmond Fed President Thomas Barkin as well as the more dovish-leaning Atlanta Fed President Raphael Bostic - have voiced of late: that there is still more work to do on bringing down inflation, and the economy's strength means the Fed can hold rates where they are to maintain that downward pressure on prices.

Perhaps her comments will matter more after the hangovers start to fade on Monday morning.

Speaking of parties, one writer today comments that it is amazing what a grand ol’ party you can throw (and the GDP you can reap) when you spend $2.7-trillion on the party. Then he throws a little cold water of his own on that by noting a trend of diminishing returns on debt-funded investments by the government:

Of course, we don’t have the latest numbers of what the full return will be from Bidenomics as it is a work in progress, but the returns on investment in 2023 appear better than they did in 2008, though it is far from a full return, and, yes, you can throw quite the GDParty with that kind of money and throw a great S&Party, too, when the punch bowl is spiked that heavily and the party favors and entertainment are in the trillions, but how long can you pile on debt at the present rate when doing so is starting to downgrade your credit rating until the party is over in a time when bonds yields are pricing back upward because the Powell-induced euphoria in the bond pits ended with the last FOMC meeting that said a firm “no” to the naughty notion of the March pivot?