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The market is “euphoric on AI,” according to Savita Subramanian, equity strategist at Bank of America. That can be a concerning signal because too much excitement about stocks can push prices too high, leading to disappointment later.
“Bull markets end with euphoria,” Subramanian said in a BofA Global Research report. But the euphoria so far appears to be concentrated in just AI and other select areas, and she raised her target for where the S&P 500 could end this year to 5,400 from 5,000.
Few obstacles seem to be in the way of Bitcoin’s current rally. The largest cryptocurrency rose for the second straight day and marched closer to its all-time high, driven by expectations of exchange-traded funds’ robust demand at the week’s start.
The most liquid token rose as much as 6.7 per cent to $US67,460 at 6.56am AEDT, according to Bitstamp. It marks its first move above $US67,000 since November 2021. The token has surged around 60 per cent so far this year, outpacing traditional asset classes such as stocks by a wide margin.
“These conditions are reminiscent of some moments of late 2020 and 2021, of the bull market and extreme optimism,” said Jaime Baeza, founder at crypto hedge fund AnB Investments. “There is high leverage in the market and levels of greed are getting extreme.”
At the heart of this frenzy for the largest crypto token lies seemingly insatiable demand from US-listed Bitcoin ETFs, which began trading on January 11. Bitcoin has jumped about 186 per cent in the last 12 months.
Meanwhile, several events scheduled for this week could upset the sharemarket.
On Wednesday, the chair of the Federal Reserve will offer testimony before a House of Representatives committee about monetary policy. Wall Street’s hope has been that inflation is cooling enough for the Fed to cut its main interest rate from its highest level since 2001. That would relieve pressure that’s built on both the economy and financial markets.
Fed Chair Jerome Powell has already said its next move is likely to be a cut, but he’s also said the Fed needs additional confirmation inflation is decisively moving down toward its 2 per cent target. That was before a couple of reports recently showed inflation at both the consumer and wholesale levels were higher than expected.
A report on Friday will show how the US job market is doing, with economists forecasting a slowdown from January’s strong growth. Resiliency there has helped keep the US economy out of recession, which in turn should drive profits for companies and support stock prices.
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But too much strength could also keep pressure on inflation. That would force traders to push forecasts for the first cut to rates even further out the calendar. Traders have already mostly given up on earlier hopes for a cut in March. They’re now eyeing June as the anticipated beginning.
In the meantime, several retailers will also offer their latest earnings reports this upcoming week. They include Costco Wholesale, Gap and Nordstrom.
Another retailer, Macy’s, jumped 15.5 per cent after two investment firms raised their offer to buy the shares they don’t already own.
Elsewhere on Wall Street, Spirit Airlines lost 13.9 per cent. It and JetBlue Airways are ending their proposed $US3.8 billion ($5.8 billion) combination after a court ruling blocked their merger. JetBlue rose 1.3 per cent.
Apple fell 2.8 per cent after the European Union hit it with a fine of nearly $US2 billion for unfairly favouring its own music streaming service over Spotify and other rivals. It was the single heaviest weight on the S&P 500.
In the bond market, the yield on the 10-year Treasury rose to 4.22 per cent from 4.18 per cent late Friday.
In stock markets abroad, Japan’s Nikkei 225 rose 0.5 per cent and topped the 40,000 level for the first time.
Elsewhere in Asia, the spotlight this week is on China’s National People’s Congress, the country’s most important political event. It opens Tuesday and could offer updates on policies to support the slowing economy, resolve troubles in the property market and stabilise financial markets.
AP
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