Tech Titans Propel Markets to New Highs Despite Fed's Caution on Rate Cut

Meanwhile, Boeing is regaining altitude and Macy's is laying off workers and closing stores

• Tech stocks are leading a market surge, while strong earnings and momentum are driving the Nasdaq toward new record high.
• The Federal Reserve is signaling a potential divergence from the market as economic indicators show resilience.
• Boeing is rebounding with the help of a major aircraft deal, Macy's is cutting job cuts and the the EU is exercising a veto.

In the dynamic landscape of the market, technology stocks continue to dominate the narrative. Yesterday, the S&P 500 saw a nearly 1% gain, while the Nasdaq Composite surged by 1.3%. Notably, the Nasdaq 100 closed at a new record high of $412.99, marking a milestone in its upward trajectory. These gains occurred despite positive economic indicators and diminished expectations of a March rate cut.

Taiwan Semiconductor ( TSM) set the tone for the day by reporting earnings that surpassed expectations and projecting a revenue increase of over 20% in 2024. This announcement fueled a 5% gain for the day, contributing to positive momentum in the tech sector. Market favorite Nvidia (NVDA) extended its run, consistently setting new record highs and adding another 2% to the success that began the previous year. The momentum extended to other tech giants, with Apple (AAPL) experiencing a 3% surge, reaching a new high for 2024 following an upgrade by Bank of America (BAC). Meanwhile, shares in Netflix (NFLX) gained 1%, and both Meta (META) and Google's parent company, Alphabet (GOOG), approached all-time highs.

Interest rates could remain stubbornly high

At the start of the year, there was widespread optimism that the Federal Reserve would cut interest rates multiple times in 2024. However, the market, which had priced in up to six cuts, faced a discrepancy with the Fed's forecast of only three. Then, yesterday's weaker-than-expected initial jobless claims report reinforced the notion that the economy remains robust while inflation is on a downward trend. Later in the day, data on existing home sales, expected to reach 3.82 million, provided further insight.

Throughout the week, various Fed officials attempted to temper expectations of a rate cut in March. Market sentiment, as reflected in Chicago Mercantile Exchange (CME) data, showed a decline in the probability of a quarter percentage point rate cut from over 70% to just 54%. Following today's developments, members of the Fed will enter a blackout period, refraining from discussing monetary policy until the conclusion of their meeting scheduled meeting for the end of the month.

Boeing is flying a bit higher

Boeing (BA), grappling with a significant stock decline of up to 40% this year, witnessed a nearly 3.5% increase after India's privately held Alaska Air announced the purchase of 150 737 MAX aircraft. In other news, retailer Macy's (M) disclosed plans to cut 3.5% of its workforce (2,350 jobs) and close five stores. The European Union's competition watchdog announced its intention to veto an $1.7 billion Amazon (AMZN) proposal to acquisition of iRobot, causing a 35% premarket drop in iRobot's shares.

The House and Senate approved a short-term spending bill, which is awaiting President Biden's signature to keep the government funded until March. This sets the stage for another round of budget discussions. Additionally, January expiration for stock options adds an interesting element, especially for longer-term options or long-term equity anticipation securities (LEAPs). Traders may engage in significant activity as they settle positions entered a year ago. Stocks like the “Magnificent Seven” (Apple, Amazon, Alphabet, Nvidia, Meta, Microsoft (MSFT) and Tesla (TSLA) could experience heightened volume, given their substantial gains in the past year. As always, the advice remains consistent: adhere to your investing plan and long-term objectives in navigating the evolving market landscape.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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