Stock Melt-Up Drives S&P 500 to Brink of Bull Run: Markets Wrap

(Bloomberg) — The relentless rally in big tech, options positioning and bets on a Federal Reserve pause following a mixed jobs report put stocks on the verge of a bull market.

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An advance of roughly 1.5% for the S&P 500 extended the benchmark’s surge from its October low to nearly 20%. A gauge of megacaps like Tesla Inc. and Apple Inc. saw its sixth straight week of gains — the longest winning run in since July 2021. Broadcom Inc. climbed after predicting that sales tied to artificial intelligence will double this year.

As stocks rose, Wall Street’s “fear gauge” plummeted to pre-pandemic levels. The Cboe Volatility Index, or VIX, dropped below 15 from an average of 23 in the past year. The risk-taking mode also drove the Russell 2000 index of small caps — the home of several regional banks — up about 3.5%

“The impressive run for equities continues to drive retail investors into the market,” said Mark Hackett, chief of investment research at Nationwide. “Investors have spent much of the past three years obsessed by the Fed, inflation, and payrolls, though volatility around those reports has settled, reflecting a less emotional market. This is bullish, as less reactivity is a sign of a healthy market.”

Options Positioning

To Andrew Brenner at NatAlliance Securities, the melt-up in equities has a lot to do with one thing: positioning.

“Options traders were off sides,” Brenner said. “We think they get back onsides next week, and the rally will run out of steam.”

Indeed, the stock advance doesn’t mean the market isn’t facing headwinds, according to Quincy Krosby, chief global strategist at LPL Financial.

Among the risks, she cites the potential ramifications of the deluge of Treasury notes — approximately $1 trillion — to be auctioned as the US department replenishes its general account following a debt-limit deal. that could ignite a significant sapping of liquidity from financial markets, she noted.

“That the Fed has telegraphed that June 14 is off the table for a rate hike no doubt reflects its concerns regarding the potential for increased market volatility stemming from dissipating liquidity,” Krosby said. “Still, today’s across-the-board rally confirms that the market doesn’t see an impending recession despite the incessant calls for one.”

FROM THE ARCHIVE: Is This a Market Melt-Up? Here Are Some Ways to Tell

Signs of labor-market slackening in May despite a pickup in hiring could strengthen the argument from Fed Chair Jerome Powell and other officials that they should take more time to assess incoming data and the evolving outlook before raising rates again.

Wall Street’s reaction to the latest jobs report showed bets that another Fed hike is likely in the bag — but that wouldn’t necessarily happen in June.

Two-year yields, which are more sensitive to imminent central bank moves, jumped 16 basis points to 4.5%.

Some 25 basis points of tightening were fully priced in across the next two meetings for part of the trading session Friday. Around 9 basis points was priced in for June, indicating a less than one-in-two chance of any hike being at this month’s meeting.

“The key question now is: can they wait until July or does this monster payrolls number trigger another burst of urgency?” said Seema Shah, chief global strategist at Principal Asset Management. “Perhaps the report details, with the unemployment rate rising and average hourly earnings growth slowing, tilts the decision to July.”

The Fed should be open to raising interest rates by a half percentage point in July if it opts to hold off from tightening this month, former Treasury Secretary Lawrence Summers said.

“We are again in a situation where the risks of overheating the economy are the primary risks that the Fed needs to be mindful of,” the Harvard University professor said in an interview with Bloomberg Television’s David Westin on Friday.

Some of the main moves in markets:

Stocks

The S&P 500 rose 1.4% as of 4 p.m. New York time
The Nasdaq 100 rose 0.7%
The Dow Jones Industrial Average rose 2.1%
The MSCI World index rose 1.5%

Currencies

The Bloomberg Dollar Spot Index rose 0.2%
The euro fell 0.5% to $1.0708
The British pound fell 0.6% to $1.2450
The Japanese yen fell 0.8% to 139.97 per dollar

Cryptocurrencies

Bitcoin rose 1.4% to $27,251.37
Ether rose 2.1% to $1,908.83

Bonds

The yield on 10-year Treasuries advanced 10 basis points to 3.69%
Germany’s 10-year yield advanced six basis points to 2.31%
Britain’s 10-year yield advanced four basis points to 4.16%

Commodities

West Texas Intermediate crude rose 2.7% to $71.98 a barrel
Gold futures fell 1.5% to $1,965.20 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Emily Graffeo, Isabelle Lee and Peyton Forte.