- The S&P 500 set another record high, driven by gains in tech stocks.
- Top tech companies like Microsoft and Apple will report earnings next week.
- Traders have factored in a 130 basis point cut in ECB rates this year, with a 96% chance of the first cut in June.
On Monday, equities rallied as the S&P 500 set another record high, driven by gains in tech stocks. Meanwhile, investors awaited corporate reports for insights into this year’s profit outlook. Additionally, on Friday, the S&P 500 confirmed its bull market status since its low on October 12.
Top tech companies like Microsoft and Apple will report earnings next week. Investors are also anticipating reports on the PCE index, S&P Global PMI readings, and a fourth-quarter GDP print for clues on the US central bank’s next policy decision. At the moment, traders have adjusted their expectations, with a 53% chance of a 25 basis point rate cut in May, shifting focus from March.
European stocks vs S&P 500 (Source: Bloomberg)
Meanwhile, European shares rose, led by tech stocks, tracking the Wall Street rally that pushed the S&P 500 to new record highs. Moreover, investors await the European Central Bank’s policy decision later this week for clues on the timing of future interest rate cuts.
Economists at Citi highlighted the significance of the ECB’s inflation projections for policy decisions. They expect policymakers to resist rate cuts if the ECB projects 2025 inflation above 2%. On the other hand, they anticipate increased pressure to cut rates if projections fall below 2%, with the first cut likely in June. Traders have factored in a 130 basis point cut in interest rates this year, with a 96% chance of the first cut in June.
Elsewhere, UK stocks climbed as the Wall Street rally overshadowed concerns about a slowing British economy and persistent inflation. Weakness in China has impacted basic resources, contributing to the FTSE 100‘s recent decline. The index has lost over 3% this month. Moreover, UK equities marked their third consecutive weekly decline on Friday. A stronger-than-expected inflation reading and a December retail sales slump raised concerns about a potential recession and complicated the outlook for interest rates.
A Reuters poll indicated uncertainty about whether the Bank of England will cut rates next quarter or in the third quarter. Only a small majority of economists expect a rate cut before July as inflation approaches its target.
