Investors aren't waiting for a Fed pivot to dive into these stocks and bonds

By Joy Wiltermuth

U.S. stocks cemented a fresh round of records on Wednesday

Investors finally seem to be fed up with waiting for rate cuts.

Stocks and bonds rallied hard on Wednesday after April's consumer-price index signaled that inflation could ease to levels that trigger a Federal Reserve pivot to rate cuts later this year.

As evidence of this, the S&P 500 SPX logged a new intraday record above 5,300 while also claiming its 23rd record close of the year, according to Dow Jones Market Data.

All three major U.S. equity benchmarks actually pushed further into record territory, with the Nasdaq Composite COMP booking back-to-back record closes and the Dow Jones Industrial Average DJIA eclipsing its last record finish in late March.

"I think FOMO is going to be a really big theme this year," Garrett Melson, a portfolio strategist at Natixis Investment Managers Solutions, told MarketWatch on Wednesday.

The sudden resurgence of wild swings in meme stocks GameStop Corp. (GME) and AMC Entertainment Holdings Inc. (AMC) might be an "extreme" expression of the fear-of-missing-out trend seeping back into markets, but Melson thinks investors also now appear less fixated on inflation staying stuck well above the Fed's 2% yearly target.

Read: Five things to know about meme stocks like GameStop and AMC - and why they're hot again

While the shelter component of April's CPI inflation gauge still looks "stubbornly strong," along with several other areas, Melson said the disinflation trend from last year still looks to be in play.

Improving market sentiment since April, a "healthy rotation" into laggards in equities, and consumer "consumption that is still very strong" all should provide "plenty of runway" to keep stocks pushing higher at the broad-index level through the summer, he said.

Bond yields, rate cuts

U.S. bond yields tumbled Wednesday as investors dove back into fixed income, helping lift bond exchange-traded funds, including the popular iShares Core U.S. Aggregate Bond ETF, AGG which was up 0.7%, booking its best daily gain of 2024, according to Dow Jones Market Data.

The benchmark 10-year Treasury rate BX:TMUBMUSD10Y also fell back to 4.36% after hitting a high for the year of around 4.7% in April.

"The way I am looking at it is that it's a small step in the right direction," Danny Zaid, a portfolio manager at TwentyFour Asset Management, said of Wednesday's CPI report reflecting inflation at a 3.4% annual pace. "It's certainly an improvement from the first three months of the year."

On bond opportunities, Zaid said U.S. corporate credit has rallied dramatically, outpacing its counterparts in Europe.

The main U.S. corporate investment-grade bond index was last pegged at a spread of 90 basis points above the risk-free rate, while a related European gauge was about 20 basis points wider.

"I don't think you're getting compensated enough" in parts of U.S. corporate credit, Zaid said, adding that on the margin, TwentyFour has a preference for European corporate credit, which is trading wide to U.S. levels and would benefit if the European Central Bank follows through and pivots to rate cuts in June, as expected.

While U.S. economic data has been stronger than in the Eurozone, European activity also appears "to be finding a bottom," he said.

"If there's one thing we've learned in this cycle," he said, "it's that things can change very, very quickly."

-Joy Wiltermuth

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

05-15-24 1617ET

Copyright (c) 2024 Dow Jones & Company, Inc.