The S&P 500 Will Open Within a Whisker of 5,000 as Arm Results Boost Ai Optimism

Thursday witnessed a fluctuating performance in U.S. stocks, with the S&P 500 index hovering near the historic 5,000 level for the first time. The day's trading activity reflected a delicate balance, as the S&P 500 experienced a modest decline of 3 points (0.1%), resting at 4,991. Simultaneously, the Dow Jones Industrial Average saw a dip of 26 points (0.1%), settling at 38,653, while the Nasdaq Composite exhibited a slight increase of 17 points (0.1%) to reach 15,774.

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The preceding Wednesday had seen positive momentum in the market, with the Dow Jones Industrial Average advancing by 156 points (0.4%) to 38,677, the S&P 500 making a substantial gain of 41 points (0.82%) to 4,995, and the Nasdaq Composite registering an increase of 148 points (0.95%) to 15,757. Remarkably, U.S. stocks were on course to record their 14th weekly climb out of the past 15 weeks, positioning them for a historical achievement comparable to the best 15-week stretches in the market's history.

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The potential landmark of the S&P 500 crossing the 5,000 threshold loomed large after a close call on Wednesday, where it reached an intraday high of 4,999.89 before settling at a record 4,995.06. Despite this near miss, Thursday appeared poised for a relatively calm session, lacking substantial catalysts to propel the market forward, beyond a few earnings reports, according to Mike O'Rourke, Chief Market Technician at JonesTrading.

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O'Rourke highlighted the top-heavy nature of the market, with a concentration of the most valuable companies steering the upward trajectory of the S&P 500 and Nasdaq. However, a notable shift had occurred, with technology giants Tesla Inc. (TSLA) and Apple Inc. (AAPL) lagging behind in the new year. This deviation opened space for companies like Eli Lilly & Co. (LLY), which recently surpassed Tesla in market capitalization, entering the top eight most valuable U.S. companies.

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While market leaders continued to drive the ascent, O'Rourke emphasized the evolving composition of these leaders, no longer confined to the same seven names. UBS CEO Sergio Ermotti acknowledged the positive momentum in the market, attributing it to $22 billion in net new assets and robust inflows in deposits across various sectors.

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The market's bullish trend in 2024 persisted due to optimism surrounding corporate earnings, especially from prominent technology companies. Contributing factors included a favorable U.S. economic landscape and the acceptance among investors that interest rates would likely remain stable until later in the year.

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Thursday's focus shifted to earnings reports, with Walt Disney's results, released after Wednesday's closing bell, bolstering sentiment. However, the positive impact faced some offset with a disappointing earnings update from PayPal.

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Of particular significance for the S&P 500 and Nasdaq Composite was the notable 20% surge in shares of Arm Holdings after the chip designer delivered optimistic guidance, citing increasing demand for new technology driven by artificial intelligence (AI).

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The market's robust performance since the beginning of 2023, marked by a 30% surge in the S&P 500, had been primarily driven by the expectation that major technology companies, such as Microsoft and Nvidia, would yield significant AI-related boosts to earnings.

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As the quarterly reporting season progressed, U.S. earnings outlook improved, with Kathleen Brooks, Research Director at XTB, noting a brighter picture emerging as companies outside the financial sector shared their results. A Treasury auction of $25 billion of 30-year bonds was one of the significant events scheduled for Thursday, with market participants also keenly observing U.S. economic data, including weekly jobless claims and wholesale inventory data.

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Richmond Fed President Tom Barkin's statements on Bloomberg Television emphasized the rationale for patience in making rate cuts. Looking ahead, analysts awaited the annual revisions to the Consumer Price Index (CPI) Index, a key inflation gauge, scheduled for release on Friday, anticipating market reactions based on the observed improvements in CPI deceleration.

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