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Investors Urged Caution As S&P 500 Nears Prior Highs, Morgan Stanley Analyst Warns

U.S. stocks set for solid start on Fed relief rally, boosted by strong Meta Platforms earnings

U.S. stocks could get off to a solid start on Thursday as a Federal Reserve relief rally appears to be in the works. Strong earnings from social media giant Meta Platforms, Inc. (NASDAQ:META) will likely perk up risk appetite further. Given Fed’s data dependency, the market’s attention is likely to be trained on data on second-quarter GDP data, jobless claims, durable goods orders and pending home sales.

Stocks ended Wednesday’s session on a mixed note as traders weighed in on the Fed decision and Chair Jerome Powell’s comments at the presser. Negative reactions to some tech earnings reports triggered negativity among traders.

The major averages opened lower and traded in a lackluster manner ahead of the Fed decision. With Powell signaling that the future rate moves will be dependent, traders took heart and initially bid up the stocks. Optimism waned thereafter and the averages gave back either part or all the gains before ending mixed.

The Dow Industrials ended higher for the 13th straight session and is now at its highest level since early February, while the S&P 500 ended slightly off its multi-month highs. More importantly, the Russell 2,000 Index hovered mostly above the unchanged line and outperformed its major counterparts.

Alphabet, Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG) led communication services stocks sharply higher, while most other sectors showed lackluster sentiment.

In this photo illustration a Threads logo is displayed on a smartphone screen and a Meta logo on a MacBook screen in Athens, Greece on July 22, 2023. PHOTO BY NIKOLAS KOKOVLIS/GETTY IMAGES 

Amid the market buoyancy, an analyst recommends investors remain cautious.

The S&P 500 Index has advanced by 27% over the past nine months, with gains accelerating considerably in the past six weeks. but these recent gains aren’t all that different from prior bear-market rallies, said Morgan Stanley’s Lisa Shalett.

“In fact, in all seven bear markets since 1960, stocks have come close to reaching their prior highs before falling to their ultimate lows for the cycle, which is why we think investors may want to remain cautious today,” she said.

The analyst recommends that investors trim the gains achieved through passive exposure to U.S. stock indices and rebalancing toward value-style and “growth at a reasonable price” stocks.

In premarket trading on Thursday, the SPDR S&P 500 ETF Trust (NYSE:SPY) rose 0.68% to $458.60 and the Invesco QQQ ETF (NASDAQ:QQQ) jumped 1.28% to $382.45, according to Zenger News Pro data

The Bureau of Economic Analysis is scheduled to release its advance second-quarter GDP report at 8:30 a.m. EDT. Economists, on average, expect 1.8% quarter-over-quarter growth, slower than the 2% growth in the first quarter. Traders may also focus on the GDP price index and the core price consumption expenditure index components of the report to gauge inflation’s trajectory.

The Commerce Department is due to release its durable goods orders report for June at 8:30 a.m. EDT. The measure is expected to grow 1% month-over-month, slower than the 1.7% increase in May. Core durable goods orders, excluding transportation orders, may have remained unchanged in June compared to May’s 0.6% increase.

The Labor Department will release its customary jobless claims report at 8:30 a.m. EDT.

The National Association of Realtors is expected to release the pending home sales index for June at 10 a.m. EDT. The pending home sales index is expected to have declined by 0.5% month-over-month in June compared to a 2.7% drop in May.

The Kansas City Fed’s regional manufacturing and composite indices are due at 11 a.m. EDT. Both indices are expected to show contracting activity for the month of July.

The Treasury is set to auction four- and eight-week bills at 11:30 a.m. EDT and seven-year notes at 1 p.m. EDT.

  • Meta Platforms, Inc. (NASDAQ:META) shares surged up over 8.50% in premarket trading following the release of its quarterly results.
  • Among the other stocks reacting to earnings releases are Chipotle Mexican Grill, Inc.  (NYSE:CMG) (down over 8.60%), Edward Life Sciences Corp. (NYSE:EW) (down over 5%), Lam Research Corp. (NASDAQ:LRCX) (up over 3%) and Western Union Co. (NYSE:WU) (up over 4%).
  • AbbVie, Inc. (NYSE:ABBV), Mastercard, Inc. (NYSE:MA), Bristol-Myers Squibb Co. (NYSE:BMY), and McDonald’s Corp. (NYSE:MCD) are among the notable companies scheduled to release its quarterly results ahead of the market open.
  • Those companies reporting after the market close include Ford Motor Co. (NYSE:F), First Solar, Inc. (NASDAQ:FSLR), KLA Corp. (NASDAQ:KLAC), and Roku, Inc. (NASDAQ:ROKU).

Crude oil futures rose 0.90% to $79.49 in early European session on Thursday after Wednesday’s 1.07% retreat.

The benchmark 10-year Treasury note rose 0.014 percentage points to 3.865%.

The Asian markets closed Thursday’s session mostly higher following the Fed decision, which came in line with expectations. The Chinese market, however, retreated amid weak industrial profit data, and the Indonesian market also settled lower.

European stocks rallied hard ahead of the European Central Bank decision due at 8:15 a.m. EDT. The central bank is widely expected to raise rates by 25  basis points to 4.25%.

Read Next: The Fed’s Influence Ripples Through US Stocks, ETFs: Wednesday’s Winners And Losers Revealed

© 2023 Zenger Zenger News does not provide investment advice. All rights reserved.

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