US stocks rise to all-time high lifted by solid corporate results

Even with stocks at highs, traders are still bracing for market swings in the face of rising press pressures.

U.S. stocks rose to an all-time high in a seventh day of gains as investors digested a spate of corporate results amid rising expectations for inflation.

The S&P 500 rose 0.3%, reversing losses in the final hour of trading, as consumer discretionary shares led the benchmark index higher after better-than-expected earnings at Tesla Inc., Pool Corp. and Tractor Supply Co. Meanwhile, International Business Machines Corp. and Lam Research Corp. fell after both missed revenue estimates.

The gains ended the longest drought without a record close since November 2020 as a solid start to the earnings season lifted shares more than 5% after a month of losses before that. Investors are braced for further volatility in the face of rising press pressures, however. Investors have done little to reward the majority of S&P 500 companies that have beat expectations so far while severely punishing those that have missed, according to data complied by Bloomberg. The Cboe Volatility Index is currently at its lowest level since February 2020.

“I think it’s OK that investors are looking at earnings and going through them with a very fine-toothed comb,” Liz Young, head of investment strategy at SoFi, said on Bloomberg’s “QuickTake Stock” streaming program. “We’re in a time-period where we are finally, it seems like, going to shift away from markets that are driven by monetary policy and back to markets that are driven by fundamentals.”

Market-implied expectations for U.S. inflation for the next half-decade have surged to the highest in 15 years as more investors have been losing faith in the Federal Reserve narrative that rising prices will be “transitory.”

The five-year Treasury yield climbed above 1.21%, the highest since February 2020, as traders increased their bets the Fed may tighten policy sooner than expected. Solid economic reports on Thursday also strengthened predictions. The latest jobless claims report unexpectedly declined to the lowest since March 2020. Sales of previously owned U.S. homes also rose in September by the most in a year.

Meanwhile, Congressional Democrats are at odds over both the tax and spending aspects of President Joe Biden’s economic package.

“Good jobs plus high inflation creates a significant one-two punch against the Fed’s accommodative stance,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial. “Easing and even rate increases down the road could start to be accelerated if we see more momentum like this, which perversely could create headwinds for the market.”

With stocks at highs, traders are braced for swings in the market while also keeping a close eye on company margins, pricing power and outlooks.

“At a stock level, you really need to focus on companies that have pricing power” and can pass along costs, Steve Chiavarone, vice president and general manager at Federated Global Investment, said on Bloomberg TV’s “Surveillance.” “If you can’t, and it starts eating away at your margin, I think you need to expect to get punished.”

Crude oil slipped, the dollar was stronger against peers and Bitcoin fell from an all-time peak.

Events to watch this week:

Fed Chair Jerome Powell takes part in policy panel discussion, Friday

Some of the main moves in markets:

Stocks
The S&P 500 rose 0.3% as of 4:02 p.m. New York time
The Nasdaq 100 rose 0.7%
The Dow Jones Industrial Average was little changed
The MSCI World index was little changed

Currencies
The Bloomberg Dollar Spot Index rose 0.2%
The euro fell 0.2% to $1.1623
The British pound fell 0.3% to $1.3788
The Japanese yen rose 0.3% to 114.02 per dollar

Bonds
The yield on 10-year Treasuries advanced two basis points to 1.68%
Germany’s 10-year yield advanced two basis points to -0.10%
Britain’s 10-year yield advanced five basis points to 1.20%

Commodities
West Texas Intermediate crude fell 0.9% to $82.64 a barrel
Gold futures were little changed