The world’s largest technology companies drove stocks toward all-time highs, while bond yields fell with traders almost fully pricing in two Federal Reserve rate cuts in 2024.

The S&P 500 was set for its 25th record this year as Nvidia Corp. led a rally in the “Magnificent Seven” megacaps. Apple Inc. rose for an eighth consecutive session. Hewlett Packard Enterprise Co. soared on strong artificial-intelligence server sales. Treasury 10-year yields dropped toward the lowest since March. The loonie fell after the Bank of Canada became the first Group of Seven central bank to kick off an easing cycle.

“We believe U.S. stocks are likely to remain supported as the year progresses,” said Solita Marcelli at UBS Global Wealth Management. “In addition to a strategic allocation to the tech sector, we see a particular opportunity in small-cap stocks supported by the beginning of the Fed’s easing cycle.”

Just 48 hours ahead of the US jobs report, a private payrolls reading showed hiring at companies grew at the slowest pace since the start of the year. Meantime, the services sector expanded by the most in nine months, powered by the largest monthly gain in a measure of business activity since 2021.

The S&P 500 rose to around 5,345, while the Nasdaq 100 climbed almost 2 per cent. Treasury 10-year yields dropped three basis points to 4.29 per cent. Swap contracts continued to show bets on a first Fed cut in November, and possibly another in December.

The loonie slid as the Bank of Canada also said it’s “reasonable to expect further cuts” if inflation progress continues. The euro edged lower, with the European Central Bank expected on Thursday to start a rate cutting cycle before the Fed for the first time ever. The Japanese yen dropped about 1 per cent. Bitcoin topped US$71,000.

A “wall of money” from passive equity allocations will pour into the stock market in early July, setting up a continuing rally through the early summer, according to Goldman Sachs Group Inc.’s Scott Rubner.

Since 1928, the first 15 days of July have been the best two-week trading period of the year for equities, and they tend to fade after July 17, according to Rubner. The S&P 500 has been positive for nine straight Julys, posting an average return of 3.7 per cent. The Nasdaq 100 has an even better record, posting gains in 16 straight Julys, with an average return of 4.6 per cent, he noted. 

“The slow and steady march higher for equity markets continues to confound the bears,” said Mark Hackett at Nationwide. “The latest stretch is being attributed to shifting views of Fed policy, though the more accurate reason is that buying pressure from retail and institutional investors, share buybacks, and growing M&A activity provides a healthy backdrop.”

Investors are refocusing on megacaps, and for good reason, according to Ed Clissold at Ned Davis Research. After a strong May, the top 10 stocks account for 35.7 per cent of the S&P 500 Index’s market cap — a record since at least 1972, he noted.

“U.S. megacaps have become investor favorites due to their ability to generate enough cash flow to both reinvest it into their businesses, with AI being the recent favorite, and return it to shareholders via dividends and buybacks,” Clissold said.

With earnings season basically over, the focus now turns back to the macro data — and that may impact stocks near-term, according to Gillian Wolff at Bloomberg Intelligence

The Bloomberg Intelligence Market Pulse Index, a sentiment gauge that acts as a contrarian signal, advanced within striking distance of “manic” territory last month. It’s a rare sign that has typically tempered US stock returns in the short-run. In the three months following a manic reading, the Russell 3000 Index has gained an average 1.7 per cent, compared with 9.1 per cent after panic.

With the Fed widely expected to stay on hold next week, the focus of the meeting will be the new Summary of Economic Projections. Back in March, Fed officials maintained their outlook for three rate cuts in 2024.

“The ‘dots’ are likely to cluster around one or two interest rate cuts this year,” said Stephen Brown at Capital Economics. “Nevertheless, as inflation falls a bit faster than officials expect and GDP growth disappoints, our base case remains that the Fed will cut in September.”

Corporate Highlights:

• CrowdStrike Holdings Inc. delivered first-quarter earnings that beat Wall Street’s expectations, despite a pullback in spending that has challenged its cybersecurity rivals.
• Boeing Co. finally launched its space taxi into orbit with NASA astronauts on board, and is on target to dock with the International Space Station on Thursday.
• Alphabet Inc. named Eli Lilly & Co. executive Anat Ashkenazi as its new chief financial officer, replacing Ruth Porat who announced last year she planned to step down.
• Discount retailer Dollar Tree Inc. is reviewing options for its troubled Family Dollar business, including a potential sale or spinoff.
• A top Senate Republican is asking a government watchdog to investigate nearly $1.7 billion in financing offered last month to hydrogen company Plug Power Inc., alleging potential conflicts of interest and risks to US taxpayers.
• ASML Holding NV became Europe’s second-biggest listed company, overtaking LVMH by market value for the first time ever.

Key events this week:

• Eurozone retail sales, ECB rate decision, Thursday
• US initial jobless claims, trade, Thursday
• China trade, forex reserves, Friday
• Eurozone GDP, Friday
• U.S. unemployment rate, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 Index surged 1 per cent to 5,345.99 as of 2:39 p.m. New York time.
• The Dow Jones Industrial Average gained 0.3 per cent to 38,822.10.
• The Nasdaq Composite Index surged 1.7 per cent to 17,146.32.
• The MSCI All-Country World Index jumped 0.8 per cent to 793.99.

Currencies

• The Bloomberg Dollar Spot Index was little changed at 1,252.16.
• The euro fell 0.1 per cent to $1.0871.
• The British pound climbed 0.1 per cent to $1.2789.
• The Japanese yen weakened 0.8 per cent to 156.10 per dollar.
• Bitcoin jumped 1 per cent to $71,120.

Bonds

• The yield on 10-year Treasuries decreased three basis points to 4.29 per cent.
• Germany’s 10-year yield fell two basis points to 2.51 per cent.
• Britain’s 10-year yield gained one basis point to 4.184 per cent.

Commodities

• The Bloomberg Commodity Index advanced 0.6 per cent to 101.88.
• West Texas Intermediate crude advanced 1.1 per cent to $74.08 a barrel.
• Gold strengthened 1.3 per cent to $2,356.31 an ounce.