MW This rotation in stocks is the bull market's 'lifeblood' as S&P 500 logs record peak
By Christine Idzelis
'These next couple weeks are going to be about corporate America'
Beneath the surface of the S&P 500 index, the stock market's performance is shifting, with the financial sector helping to sustain the bull run early in the latest corporate earnings reporting season.
"The bull market is alive and well," said Adam Turnquist, chief technical strategist at LPL Financial, in a phone interview. Within the financial sector, banks are "breaking out," he said.
The S&P 500 SPX on Friday rose to its 47th record close of 2024, soaring 23% so far this year. The benchmark for U.S. large-cap stocks has climbed six straight weeks, marking its longest weekly winning streak of the year, according to Dow Jones Market Data.
Investors are closely watching companies' earnings season for the third quarter, which banks kicked off earlier this month, for clues on whether the market can keep rallying. In a positive sign, cyclical areas such as financials and industrials, picked up the slack when investors began questioning the leadership of technology stocks, according to Turnquist.
That kind of rotation is "exactly what you want to see," he said. "That's the lifeblood of a bull market, as they say in the technical world, and we're really seeing that at this stage."
The S&P 500's financial sector is up 5% this month through Friday, with its October performance topping all other sectors in the U.S. equities index to easily beat the market. The S&P 500, whose largest sector by far is technology, has lagged with a 1.8% rise so far in October.
The financial sector has the highest percentage of stocks beating the S&P 500 this year at around 61%, according to a note from Turnquist emailed Oct. 17. "Most people are surprised by that," as they tend to think it's technology, although not even half of the tech sector is beating the market, he told MarketWatch by phone.
"These next couple weeks are going to be about corporate America," said Anthony Saglimbene, chief market strategist at Ameriprise Financial, in a phone interview. "It's going to be about inside the companies that actually move the indexes like the S&P 500 and Nasdaq."
Among the large companies that will report their quarterly earnings in the coming week are Boeing Co. $(BA)$, Coca-Cola Co. $(KO)$, General Motors Co. $(GM)$, Verizon Communications Inc. $(VZ)$ and Tesla Inc.
Tesla $(TSLA)$, which has a market value of more than $700 billion, is among a handful of megacap companies in the S&P 500 sometimes referred to as the "Magnificent Seven," a label that surfaced earlier in the bull market after they delivered outsized gains. Other companies in the group have larger market capitalizations, including Nvidia Corp. $(NVDA)$ at more than $3 trillion, and Google parent Alphabet Inc. $(GOOGL)$ at around $2 trillion.
"Nvidia and Alphabet are the only 'Magnificent 7' companies expected to be among the top five contributors to year-over-year earnings growth for the S&P 500 for the third quarter," said John Butters, a senior earnings analyst at FactSet, in a note Friday.
Artificial intelligence chip maker Nvidia is expected to be the biggest contributor to the index's third-quarter earnings growth year over year, followed by drug makers Pfizer Inc. $(PFE)$ and Moderna Inc. $(MRNA)$ and chip maker Micron Technology Inc. $(MU)$, according to his note. Analysts expect Alphabet will make the firth largest contribution, Butters said.
Beyond, Nvidia, Alphabet and Tesla, the Magnificent Seven stocks include Microsoft Corp. $(MSFT)$, Amazon.com Inc. $(AMZN)$, Facebook parent Meta Platforms Inc. $(META)$ and Apple Inc. Nvidia's stock has skyrocketed almost 179% this year through Friday, a reflection of investors' enthusiasm for AI.
But shares of major Wall Street banks Goldman Sachs Group Inc. $(GS)$, JPMorgan Chase & Co. $(JPM)$ and Wells Fargo & Co. $(WFC)$ are all widely beating most of the Magnificent Seven so far this year.
Goldman's stock ended Friday with a 37% gain year to date, while JPMorgan is up 32.5% so far in 2024 and shares of Wells Fargo have jumped 30.8% over the same stretch, according to FactSet data. Those gains top Apple's $(AAPL)$ 22.1% gain this year, as well as Microsoft's 11.2% gain, Amazon's 24.4% jump, Alphabet's 17% climb and Tesla's 11.2% drop.
'Chugging along just fine'
Elsewhere in markets, spreads in corporate credit reflect investor optimism about the U.S. economy.
So-called spreads are a measure of compensation investors demand over comparable U.S. Treasurys for taking risk in bonds issued by companies.
"The tight spreads are telling you that," while investors are assessing a range of macro risks, "they don't believe that these risks are going to derail the economy," said Arvind Narayanan, a senior portfolio manager and co-head of investment-grade credit at Vanguard, in a phone interview.
"We don't foresee a recession" in the next six to 12 months, he said. "The economy seems to be chugging along just fine."
In the bond market, the yield on the 10-year Treasury note BX:TMUBMUSD10Y has risen 27.5 basis points this month, ending Friday at 4.074%, according to Dow Jones Market Data.
Need gold?
To be sure, U.S. stocks have risen to record highs despite investors having plenty to worry about, including potential flare ups in inflation, fighting in the Middle East, the war between Ukraine and Russia, and uncertainties surrounding the U.S. presidential election in early November.
That may be partly why gold (GC00), a haven asset, has also climbed to a series of fresh all-time highs in 2024, said George Milling-Stanley, chief gold strategist at State Street Global Advisors, in a phone interview. "If there's so much appetite for risk out there, then I think that the prudent investor" at least considers upping exposure to "risk-off assets like gold," he said.
The largest exchange-traded fund that invests directly in physical gold, SPDR Gold Shares GLD, has rallied more than 31% so far this year, beating the S&P 500's 23% gain in 2024.
The U.S. stock market closed higher Friday, with the S&P 500, Dow Jones Industrial DJIA and Nasdaq Composite COMP all booking gains. The Dow also ended at another record high.
In the short-term, Turnquist said he wouldn't be surprised to see a pullback in U.S. stocks after the recent rally. But for the longer term, "we see little risk that the bull market is growing tired."
-Christine Idzelis
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
October 20, 2024 12:01 ET (16:01 GMT)
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