Friday, February 23, 2024

Wall Street on way to more records, ASX set to rise

Worries have grown about how top-heavy the stock market has become, where the seven biggest companies have accounted for a disproportionate amount of the S&P 500’s rally to a record. If more companies aside from the group known as the “Magnificent Seven” can deliver strong profit growth, it could soften the criticism that the market has become too expensive.

Another worry for the market has been uncertainty about just how much danger lurks for the economy in the loans and other holdings banks have on their balance sheets that are tied to commercial real estate.

The widespread expectation, even among top US government officials, is that weakness for office buildings and other commercial projects will mean at least some pain for banks. But no one can say how much for sure.

That’s why so much focus has been on New York Community Bancorp recently. It shocked investors roughly two weeks ago when it announced a surprise loss for its latest quarter. Some of the pain was due to its acquisition of Signature Bank during the industry’s mini-crisis last year. But worries about commercial real estate also played a role.

New York Community Bancorp’s stock has roughly halved since that surprise report, but it was doing better on Monday. It rose 1.7 per cent.

An index measuring stock prices across the regional banking industry was also higher, up 2 per cent.

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In the bond market, yields were moving very little. The yield on the 10-year Treasury slipped to 4.17 per cent from 4.18 per cent, late Friday.

The two-year Treasury yield, which more closely tracks expectations for the Federal Reserve, dipped to 4.47 per cent from 4.48 per cent late Friday.

Inflation has been cooling enough that the Federal Reserve has hinted it may cut its main interest rate several times this year. Such cuts typically juice financial markets and the economy, and they would release pressure that’s built up since the Fed has taken its main interest rate to the highest level since 2001.

After earlier hoping cuts to rates could begin as soon as March, traders have since pushed their forecasts out to May or June. Reports showing the US economy and job market remain remarkably solid, along with some comments from Fed officials, have been forcing the delays.

If the Fed ends up making traders wait even longer than expected for rate cuts, it could upset stock prices that have already shot upward on the assumption of lots of good news, according to Marc Dizard, chief investment strategist at PNC Asset Management Group. Besides lower interest rates, that also includes stronger convictions for no recession for the US economy, inflation continuing to come down and corporate profits growing more strongly.

“There isn’t a whole lot more than can really go right,” he said.

In stock markets abroad, indexes were modestly higher in much of Europe. In Asia, several markets were closed for holidays.

AP

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