Stock traders decided to take some chips off the table at the start of a week that will bring the Federal Reserve’s preferred inflation measure — on a day when markets will be closed.

Equities pulled back after a rally that drove the S&P 500 to multiple records, spurring speculation the market has gone too far, too fast. Investors also took a cautious stance on bets the personal consumption expenditures price index — due on Good Friday — will show inflation probably remained uncomfortably high. On that same day, Jerome Powell is due to speak.

A sense of prudence also prevailed as concern about a disconnect between earnings expectations and share prices have grown. Morgan Stanley and JPMorgan Chase & Co. strategists were the latest to warn it’ll be hard to justify lofty valuations if profit acceleration fails to materialize.

“We continue to see sentiment as stretched and think a U.S. equity market pullback is overdue,” said Lori Calvasina at RBC Capital Markets.

The S&P 500 fell below 5,220. Intel Corp. slipped on a news report China is limiting the use of foreign chips. Boeing Co. climbed after announcing that its chief will step down. Treasury 10-year yields rose five basis points to 4.25 per cent. Bitcoin topped $70,000.

In a sign of how overheated the stock market has been, the S&P 500 finished last week 14 per cent above its 200-day moving average.

“That’s quite stretched historically,” said Jonathan Krinsky at BTIG. “The big question is: do we get a correction through time, or price. The latter has been elusive for the last five months, but we do think there is a window here for some modest price weakness.”

Last week also saw the most amount of S&P 500’s 52-week highs in nearly three years, according to Krinsky.

“While this rarely marks a final high, the near-term returns are much more mixed than you might imagine, with similar surges happening prior to large drawdowns in ‘18 and ‘20, while also amidst strong uptrends during ‘17, ‘20, and ‘21,” Krinsky noted.

Concerns about a near-term overbought market have surfaced at a time when consensus earnings estimates have been revised lower.

Analysts currently expect earnings-per-share to grow about 9 per cent this year versus 11 per cent at the start of November, according to data compiled by Bloomberg Intelligence.

“The stock market faces its next test in a few weeks when earnings season begins in mid-April,” said Clark Bellin at Bellwether Wealth. “Stock prices and valuations are elevated heading into this next earnings season, which leaves little room for disappointment if companies fail to deliver strong earnings.”

Investors looking to put new money to work in the market should wait for a pullback, Bellin added.

“The market already had a few minor pullbacks so far this year,” Bellin also noted. “They were shallow and quick, but they proved to be good buying opportunities.”

The combination of healthy US economic data, expectations the Fed will cut rates and optimism about artificial intelligence have all driven the S&P 500 up almost 10 per cent this year — leaving many year-end forecasts in the dust.

Goldman Sachs Group Inc. strategists are sticking with their year-end prediction of 5,200 — but have a scenario in which tech megacaps lead the index up to 6,000.

“Although AI optimism appears high, long-term growth expectations and valuations for the largest TMT stocks are still far from ‘bubble’ territory,” the strategists led by David Kostin wrote.

The pro-risk mood among equity investors is likely to spread beyond the megacap technology names that have comprised much of the stock market’s returns into other sectors, according to strategists at BlackRock’s Investment Institute.

Strong corporate earnings, economic resilience in the face of higher interest rates and “prospects for innovation” have prompted Oppenheimer Asset Management’s John Stoltzfus to raise his year-end target on the S&P 500 to 5,500 — joining Societe Generale for the highest forecast on Wall Street.

“The big surprise this year has not been so much the resilience of the economy, but rather the substantial capitulation among the bears and bearish community,” Stoltzfus said. Profit taking, particularly in Big Tech, is expected and normal — and any near-term volatility is opportunity to “catch babies that get thrown out with the bath water,” he noted.

Corporate highlights:

• Apple Inc., Alphabet Inc.’s Google and Meta Platforms Inc. face the risk of potentially hefty fines as the European Union opened a full-blown investigation into the firms’ compliance with strict new laws reining in the power of Big Tech.
• Take-Two Interactive Software Inc.’s tumbled on fears of a possible delay to the much-anticipated Grand Theft Auto VI video game.
• U.S. aviation authorities are considering drastic measures to curb growth at United Airlines Holdings Inc., including preventing the carrier from adding new routes, following a series of safety incidents.
• Lucid Group Inc. is getting a $1 billion cash injection from its biggest investor, an affiliate of Saudi Arabia’s Public Investment Fund, providing the troubled electric carmaker with a needed lifeline.
• Manulife Financial Corp. has struck another deal to offload some of its less-profitable assets, agreeing to reinsure C$5.8 billion ($4.3 billion) of Canadian policies with RGA Life Reinsurance Co. of Canada.
• Match Group Inc., the owner of dating apps Tinder and Hinge, named two directors to its board following discussions with activist investor Elliott Investment Management.
• Novo Nordisk A/S agreed to buy Cardior Pharmaceuticals for up to €1 billion ($1.1 billion) as the Danish maker of weight-loss drugs continues to expand into treatments for cardiovascular disease.

Key events this week:

• ECB chief economist Philip Lane participates in event in Dublin, Tuesday
• U.S. durable goods, Conference Board consumer confidence, Tuesday
• China industrial profits, Wednesday
• Bank of England issues financial policy committee minutes, Wednesday
• Eurozone economic confidence, consumer confidence, Wednesday
• Fed Governor Christopher Waller speaks, Wednesday
• U.K. GDP revision, Thursday
• U.S. University of Michigan consumer sentiment, initial jobless claims, GDP, Thursday
• Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday
• U.S. personal income and spending, PCE deflator, Friday
• Good Friday. Exchanges closed in US and many other countries in observance of holiday. US federal government is open.
• San Francisco Fed President Mary Daly speaks, Friday
• Fed Chair Jerome Powell speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.3 per cent
• The Dow Jones Industrial Average fell 0.4 per cent
• The MSCI World index fell 0.2 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.2 per cent
• The euro rose 0.3 per cent to $1.0839
• The British pound rose 0.3 per cent to $1.2638
• The Japanese yen was little changed at 151.45 per dollar

Cryptocurrencies

• Bitcoin rose 7.4 per cent to $71,058.63
• Ether rose 6.7 per cent to $3,642.43

Bonds

• The yield on 10-year Treasuries advanced five basis points to 4.25 per cent
• Germany’s 10-year yield advanced five basis points to 2.37 per cent
• Britain’s 10-year yield advanced six basis points to 3.99 per cent

Commodities

• West Texas Intermediate crude rose 1.6 per cent to $81.95 a barrel
• Spot gold rose 0.3 per cent to $2,171.30 an ounce

This story was produced with the assistance of Bloomberg Automation.