U.S. stocks edged up on Monday, as investor sentiment improved on optimism regarding the economic outlook and expectations of potential interest rate cuts in the near future.
The S&P 500, fresh off its first record close since January 2022, gained 0.2 percent to finish at 4,850.43. Meanwhile, the Dow Jones surpassed the psychologically significant 38,000 mark for the first time, climbing 0.4 percent to close at 38,001.81. The tech-heavy Nasdaq Composite advanced 0.3 percent to settle at 15,360.29.
After a shaky beginning to the year, U.S. stocks rebounded on the back of strong performances from tech companies, like Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta and Tesla. Major indexes are now positive for January, thanks to this AI-driven rally. Investors will closely watch the upcoming quarterly results from tech giants like Netflix and Tesla, as it could significantly influence the market's near-term direction.
However, an equally weighted version of the S&P 500, which neutralizes the influence of these large-cap stocks, paints a slightly different picture. This means that even without the outsized influence of large-cap tech stocks, the overall market still looks relatively attractive in terms of valuation.
This alternative index currently trades at around 16 times forward earnings, with a 17 percent discount compared to the standard valuation of the broader benchmark.
Market participants will also see a temporary pause in commentary from Federal Reserve officials who have previously influenced stock movements, ahead of the Fed's next meeting on January 30. However, key economic data releases later this week, including gross domestic product (GDP) and the Personal Consumption Expenditures (PCE) price index could reignite the ongoing debate regarding the timing of a potential rate cut.
“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," said David Donabedian at CIBC Private Wealth US. "No matter how high interest rates go, the economy will continue to glide right through.”
In contrast to stocks, the benchmark 10-year Treasury note dipped two basis points to settle at 4.10 percent. The U.S. dollar also experienced a mild pullback, with the DXY index slipping 0.15 percent to close at 103.18.
Stocks breakdown
Among the Dow, Apple (AAPL) climbed roughly one percent, while biopharmaceutical giant Amgen (AMGN) reached a new intraday high before finishing slightly higher. Goldman Sachs (GS) reached a 52-week peak, closing more than one percent above its previous high.
Both chipmaker Nvidia (NVDA) and social media platform Meta (META) scaled new heights and touched fresh all-time highs during yesterday's trading session.
In individual stocks, Boeing (BA) faced renewed pressure after the Federal Aviation Administration (FAA) issued a safety alert urging airlines to inspect a different model of 737 aircraft that utilizes the same door plugs as the Max 9 that experienced a mid-air incident earlier this month. This latest development follows growing concerns surrounding the safety of these door plugs.
Archer-Daniels-Midland (ADM) also plunged a staggering 24.2 percent. The agricultural behemoth placed its CFO on administrative leave and postponed the release of its financial results due to an investigation into its accounting practices. This investigation stemmed from regulators' requests for documents that resulted in downward revisions to ADM's full-year 2023 profit forecasts.
In contrast, department store chain Macy's (M) surged 3.6 percent yesterday after rejecting a takeover bid from two investment firms, Arkhouse Management and Brigade Capital Management. The offer of $21 per share was deemed "not actionable and [failing] to provide compelling value to Macy's Inc. shareholders," a company statement read.
Renewable energy company SolarEdge Technologies (SEDG) also gained four percent after announcing a 16 percent workforce reduction, while NuStar Energy (NS) surged 18.2 percent following Sunoco's (SUN) acquisition announcement. The deal, valued at $7.3 billion including debt, covers NuStar's pipeline and storage assets.