Bond Yields Fall as Stocks Reach All-time Highs

The world’s largest technology companies led a surge in stock markets, with traders analyzing recent economic data for indications of the Federal Reserve's future actions. Concurrently, the Canadian dollar depreciated following a rate cut by its central bank.

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The S&P 500 approached its 25th record high of the year, driven by a significant rally in major technology stocks, particularly Nvidia Corp. Apple Inc. experienced its eighth consecutive day of gains, marking its longest winning streak since March 2022. Hewlett Packard Enterprise Co. saw a substantial increase in its stock price after reporting revenues that exceeded expectations, boosted by strong sales of servers designed for artificial intelligence applications. Additionally, yields on 10-year Treasury bonds dropped to their lowest levels since March.

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As the US jobs report release neared, data revealed that the services sector expanded at its fastest rate in nine months, with the highest monthly increase in business activity since 2021. However, separate statistics indicated that hiring by US companies grew at the slowest rate since the beginning of the year.

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Solita Marcelli of UBS Global Wealth Management stated, "We believe US stocks are likely to remain supported as the year progresses." She highlighted opportunities in small-cap stocks, which could benefit from the Federal Reserve’s anticipated easing cycle.

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The S&P 500 surpassed the 5,300 mark, while the Nasdaq 100 climbed by 1.5%. Treasury 10-year yields fell by three basis points to 4.29%.

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The Canadian dollar weakened as the Bank of Canada hinted at potential further rate cuts if inflation continues to decline. Meanwhile, the euro also dipped slightly, with expectations that the European Central Bank would initiate a rate-cutting cycle before the Federal Reserve for the first time. The Japanese yen fell by approximately 1%, and Bitcoin reached a high of over $71,000.

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With the Federal Reserve widely expected to maintain its current stance in the upcoming meeting, attention will be on the new Summary of Economic Projections. In March, Fed officials had projected three rate cuts in 2024.

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Stephen Brown of Capital Economics commented, "The 'dots' are likely to cluster around one or two interest rate cuts this year. However, as inflation decreases more rapidly than expected and GDP growth falls short, our base case remains that the Fed will cut in September."

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Meanwhile, the Intelligence Market Pulse Index, a sentiment indicator that serves as a contrarian signal, moved close to "manic" levels last month, according to Intelligence. This rare indicator often precedes a moderation in US stock returns in the short term, as suggested by Intelligence data.

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Historically, following a manic reading, the Russell 3000 Index has averaged a 1.7% gain over the subsequent three months, compared to a 9.1% gain after a panic reading.

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Overall, the interplay of robust technology sector performance, mixed economic indicators, and central bank policies continues to shape market dynamics, influencing investor sentiment and guiding strategic financial decisions.

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