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S&P 500 TOPS 5,000 ON LOWER INFLATION, BUT TECH-BOND GAP RAISES QUESTIONS

- Moving the markets
The S&P 500 finally cracked the 5,000 mark today, thanks to a belated Christmas gift from the government: a lower inflation rate for December.
The index had flirted with the milestone on Thursday, but only sealed the deal today. Small Caps had a big week, squeezing the shorts and beating the Nasdaq (and the S&P) in the race for returns. The Dow, on the other hand, was a snooze fest, ending the week flat.
The MAG7 stocks continued their winning streak for the fifth week in a row, while Regional Bank stocks had a rough ride, but recovered from their mid-week slump.
The market rally has been fueled by strong earnings, tame inflation, and a robust economy, making this the fifth week of gains in a row. But don’t pop the champagne just yet because today’s rally was mostly driven by tech stocks, which could be a sign of trouble ahead.
The government revised the December consumer price index down to 0.2%, from 0.3%, giving investors a reason to cheer. The core inflation rate, which excludes food and energy, was unchanged. Treasury yields dipped briefly after the news, but then bounced back to around 4.17% for the 10-year.
Next week, we’ll see if January’s inflation data can keep the party going. Tech stocks were the stars of the show today, pushing the S&P 500 over the 5,000 mark. Nvidia and Alphabet each gained about 1%, while Cloudflare soared 18% on stellar earnings and lifted the cloud sector with it.
The market is acknowledging that the Fed will be less aggressive in cutting rates this year, with the odds of a March cut below 20% and less than five cuts priced in for 2024.
The dollar was steady this week, but edged up slightly, while gold edged down slightly. Oil prices bounced back to over $76, after last week’s plunge.
This chart shows the divergence between tech stocks and bond yields, which usually move in sync.
Is this a temporary glitch, or a sign that tech stocks are in a bubble that will burst when yields rise?
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