Wall Street traders sent stocks higher in the final stretch of a quarter that saw the market surge almost 10 per cent, with many institutional investors potentially rebalancing their portfolios.

In another volatile session, the S&P 500 closed at a record after almost erasing gains earlier Wednesday. Apple Inc. and Tesla Inc. — this year’s laggards in the megacap space — climbed, while Nvidia Corp. fell. The Dow Jones Industrial Average added over 1 per cent. The Nasdaq 100 underperformed. Treasuries rose, with the market set to close at 2 p.m. New York time on Thursday before the holiday.

Every quarter-end, institutional investors check their market exposures to make sure they meet strict allocation limits between equities and bonds, as well as between domestic and international shares. With stocks set to cap another strong quarter, pension funds are likely to sell an estimated $32 billion in equities to rebalance their positions, according to Goldman Sachs Group Inc. 

“At the end of almost every quarter, we hear chatter around Wall Street that there is going to have to be some big rebalancing play,” said Matt Maley at Miller Tabak + Co. “Maybe the quarterly rebalancing that everybody talks about each quarter, but rarely has much impact, just might create some more interesting moves before the week (and quarter) are over.”

The S&P 500 approached 5,250. Merck & Co. rallied as a new drug for a rare form of high blood pressure got U.S. approval. Former President Donald Trump’s Trump Media & Technology Group Corp. powered higher after a stellar Nasdaq debut. Treasury 10-year yields declined four basis points to 4.19 per cent.

Traders also awaited Federal Reserve Governor Christopher Waller’s remarks at an event after the close.

To Thierry Wizman at Macquarie, Waller may offer a “rebuke of Jay Powell’s dovishness.”

“While not dismissing the prospect of a June cut, Waller may point to sturdy U.S. aggregate demand and ‘sticky’ inflation in the January and February data to justify fewer rate cuts than the median ‘dots’ imply,” Wizman noted.

Gentle rate cuts could create a mildly supportive environment for risk assets — which could also be helped by a high level of cash on the sidelines, according to Kristina Hooper at Invesco.

“For those who believe that such cuts are already priced into stocks and fixed income, I would argue that there are other catalysts” Hooper said. “Keep in mind there is a high level of cash sitting on the sidelines, some of which could rotate into equities and fixed income, especially if rates begin to fall and/or more investors develop a fear of missing out.” 

To illustrate, she cited the fact that money-market assets peaked in the fourth quarter of 2008 before dropping significantly.  

“It seems no coincidence that cash started to move off the sidelines just as stocks began a strong and lengthy multi-year rally in March of 2009,” she concluded.

After the S&P 500 soared about 25 per cent since late October, many have flagged concern that positioning is stretched and stocks are more vulnerable to short-term profit taking.

A blistering five-month rally in U.S. equities has indeed seen valuations soar, but plenty of corners in the S&P 500 are still historically cheap. 

At the sector level, eight of 11 groups trade at a discount compared to pre-pandemic levels — while only technology, materials, and industrials are trading at a premium, according to Bloomberg Intelligence data.

Meanwhile, nearly three fourths of the gauge trade below its capitalization-weighted price-to-book ratio — a measure that compares market capitalization to book value, used to find undervalued pockets of the market, BI’s analysis showed. A similar share of companies, 71 per cent, carry forward-price-to earnings multiples beneath the index level, with roughly half below their average before Covid.

“Multiples for the next year appear much loftier than they seem for the S&P 500 index, distorted by analysts’ conservative forecasts for an earnings recovery from the 2022-2023 profit recession,” said a BI team led by Gina Martin Adams.

Trailing 12-month S&P 500 earnings per share contracted 13 per cent from the March 2022 high — well short of the median 25.8 per cent peak-to-trough drop in economic contractions since the 1969-1970 recession, and 16.8 per cent excluding the 2007-09 and 2020 extreme outliers, the BI strategists noted. Only two recessions — 1980 and 1969-1970 — had shallower drops in earnings.

S&P 500 EPS on median jumped 15.6 per cent in the first 12 months after each recessionary trough since 1969 (excluding 2007-09 and 2020), the analysis showed. 

“Perhaps reflecting the smaller-than-usual drop that occurred in this cycle, consensus forecasts a mere 11.1 per cent rise in earnings over the next year,” the strategists concluded.

Corporate Highlights:

• Amazon.com Inc. says it’s investing an additional $2.75 billion in Anthropic, completing a deal it made last year to back the artificial intelligence startup and expand a partnership between the companies.
• Robinhood Markets Inc., best known for offering commission-free trading, is rolling out a credit card to U.S. consumers as it looks to become a broader financial-services company.
• Carnival Corp. slightly raised its outlook for 2024 amid record setting demand for cruises. However, the company also citied a negative impact related to the collapse of Francis Scott Key Bridge in Baltimore and is continuing to feel the effects of conflict in the Red Sea region.
• Fisker Inc. dramatically reduced the price of the Ocean sport utility vehicle — its only model — as the electric-car maker struggles to stay in business.

Key events this week:

• UK 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 U.S. and many other countries in observance of holiday. U.S. 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 rose 0.9 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.4 per cent
• The Dow Jones Industrial Average rose 1.2 per cent
• The MSCI World index rose 0.6 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0827
• The British pound was little changed at $1.2638
• The Japanese yen rose 0.2 per cent to 151.33 per dollar

Cryptocurrencies

• Bitcoin fell 1.5 per cent to $68,745.2
• Ether fell 2.2 per cent to $3,495.85

Bonds

• The yield on 10-year Treasuries declined four basis points to 4.19 per cent
• Germany’s 10-year yield declined six basis points to 2.29 per cent
• Britain’s 10-year yield declined four basis points to 3.93 per cent

Commodities

• West Texas Intermediate crude was little changed
• Spot gold rose 0.7 per cent to $2,194 an ounce