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S&P 500 Hits Another Record High After Tech Titans Propel Friday Rally

By:JJ Kinahan

But the market contemplates volatility as Nvidia surges, Disney's tipping point looms and Boeing grapples with issues

  • Market concentration is raising concern; investors need diverse participation to mitigate risk and ensure stability.
  • Earnings reports are revealing diverse consumer trends: high-end retail thrives, while the financing landscape evolves with Affirm.
  • Tech divergence is occuring as Nvidia soars on conviction, Boeing faces challenges and VIX signals a potential market pause.

The S&P 500 concluded the week with a robust rally, marking a 1.4% increase and achieving another record-breaking closing high at 4958.61. The Nasdaq Composite also experienced gains, closing the week with a 1.1% increase. The driving force behind these gains was a Friday rally, led by tech giants Amazon (AMZN) and Meta Platforms (META), the parent company of Facebook.

While the previous week took the spotlight with notable earnings and economic data, the current week presents a lengthy list of companies reporting results, making it the B-side of the financial performance tune.

A mixed bag of companies

Among the key players reporting earnings this week, Caterpillar (CAT) announced numbers that fell short on revenues, yet highlighted strong global demand. The company also unveiled cost-cutting plans, resulting in a 4% premarket surge in its stock. Similarly, Deere (DE), reporting next week, witnessed a 1% premarket increase.

Despite beating earnings expectations, McDonald's (MCD) faced a revenue miss, attributing it to the conflict in the Middle East affecting international sales. However, the company maintained its full-year guidance. A whimsical thought emerges— we wonder whether the world would be a better place if everyone swapped weapons for Shamrock Shakes.

Estee Lauder (EL) reported a revenue miss but offset it with a reorganization plan involving job cuts. Investors seemed content, as the stock surged by 13.5% in premarket trading.

Later in the week, Disney (DIS), Ralph Lauren (RL) and Affirm (AFRM) are set to announce earnings. Disney's results are closely watched, given recent scrutiny since Michael Eisner's return. Ralph Lauren's performance offers insights into high-end retail, reflecting potential sustained consumer demand. Affirm, positioned at the opposite end, provides a perspective on consumer financing. Together, these earnings shed light on consumer spending across a diverse spectrum.

Not much chance of a March rate cut

Federal Reserve Chair Jerome Powell's 60 Minutes interview was a pivotal event, indicating an unlikely interest rate cut in March, following a robust jobs report. Market expectations, as per the Chicago Mercantile Exchange (CME), reflect a mere 15% chance of a rate cut in March, down from 80% weeks ago. Looking ahead to May, the probability increases to 65%.

The preceding week's rally raised concerns about market concentration, primarily within a handful of tech stocks known as the Magnificent Seven. Friday's gains were driven by Amazon and Meta, with Meta alone contributing 40% to the overall increase. Investors hope for more diverse participation from companies in the coming week to mitigate concentration risk.

Nvidia (NVIDIA) and Boeing (BA) present a stark contrast. Nvidia, enjoying a premarket surge of over 3%, received a boost as Goldman Sachs (GS)added it to its conviction list with an $800 price target. The chipmaker's shares have already soared by 34% this year. In contrast, Boeing faces ongoing challenges, with the discovery of potential issues in the fuselage of yet-to-be-delivered planes, resulting in a 2% premarket decline and a 19% year-to-date decrease.

Lastly, the VIX, though still relatively low by historical standards, has been quietly climbing despite the market reaching new highs. A nearly 2% increase in premarket VIX suggests rising volatility. Concentration risk in the market may contribute to this uptick, potentially signaling a need for a market pause. As half of the S&P 500 is yet to report earnings, the coming days will reveal whether other companies can share the load, preventing market fatigue. Adhering to long-term objectives and investment plans is advisable amid the evolving market dynamics.

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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