U.S. stocks continued to rise in early trading on Monday, with the Dow breaking through the 38,000-point mark for the first time. The major stock indexes continued their gains after the S&P 500 and the Dow hit record highs last Friday. Investors continue to focus on the prospect of a rate cut by the Federal Reserve. This week the market will focus on GDP and PCE personal consumption expenditure data.


On Monday morning, the S&P 500 Index rose to a maximum of 4868.41 points, and the Dow Jones Industrial Average rose to a maximum of 38085.60 points, both hitting record highs. The Dow Jones Industrial Average broke through 38,000 points for the first time in history, just over a month after it broke through 37,000 points for the first time (December 13, 2023). The Dow rose 210.19 points, or 0.56%, to 38073.99 points; the Nasdaq rose 100.13 points, or 0.65%, to 15411.10 points; the S&P 500 rose 22.88 points, or 0.47%, to 4862.69 points. Technology stocks led the gains, with the market optimistic about expectations of a Federal Reserve interest rate cut and the boom in artificial intelligence.

U.S. stocks closed higher last Friday. The S&P 500 broke its intraday and closing records since January 2022, closing at 4839.81 points. The Dow also hit a record high. Friday's surge in U.S. stocks shows that U.S. stocks have officially entered a bull market that will begin in October 2022, and are not just a rebound in a bear market. The S&P 500 is up more than 34% since its lows.

So far in 2024, all three major U.S. stock indexes have recorded gains, with technology stocks leading the way.

U.S. stocks' record closing last week brought valuations back to last July's highs. But Citi strategists say a closer look reveals U.S. stocks are not as expensive as they appear.

Citi strategists led by Scrott Chronert said that although the S&P 500 index hit a record high last Friday, pushing the forward price-to-earnings ratio of the benchmark index back to above 20, this was a deviation caused by the so-called seven giants of U.S. technology. "Valuation is a common resistance to our optimistic outlook for the S&P 500 index. In our view, the index price-to-earnings ratio may be misleading."

Citi said gains in Apple, Microsoft, Nvidia, Alphabet, Amazon, MetaPlatforms and Tesla drove the stock market recovery, mainly based on optimism about artificial intelligence and cost-cutting initiatives by these companies. The S&P 500 equal-weighted index, which strips out the undue influence of these companies, yields a forward price-to-earnings ratio of about 16, 17% below the benchmark's standard valuation.

The future performance of U.S. stocks appears to depend on whether the U.S. economy can achieve a soft landing—cooling the economy without slipping into recession.

Investors expect that the Federal Reserve will start to cut interest rates in March and start taking a series of measures to lower the benchmark interest rate, but now they are not sure whether the Fed will start to cut interest rates from March.

Investors now see a roughly 47% chance of a rate cut by the Fed in March, compared with an 81% chance one week ago, according to data from CME Group's FedWatch tool.

Investors will be closely watching a slew of economic reports this week, including gross domestic product data on Thursday and personal consumption expenditures prices on Friday. Both reports can provide investors with insight into how central bank policymakers view future monetary policy.

A survey by the National Association of Business Economics (NABE) shows that more and more economists believe that the U.S. economy should be able to avoid recession in the next year, but some people, based on historical experience, believe that the current interest rate level will inevitably lead to recession.

The latest NABE survey released on Monday showed that about 91% of respondents believe that the probability of the United States entering a recession in the next 12 months is 50% or lower. That's up from 79% in the October survey and a sharp reversal from a year ago, when most economists expected the U.S. economy to slip into recession as the Federal Reserve raised interest rates to combat high inflation.

The apparent rise in optimism in the survey is consistent with most of the latest economic data, including a consumer confidence index that rose to a two-and-a-half-year high last week. In addition, inflation is falling faster than expected and the labor market is cooling, but not collapsing.

Since July last year, Fed policymakers have kept the policy rate in a range of 5.25%-5.5%. They have signaled they may cut interest rates this year as long as inflation continues to fall.

Analysts polled by NABE expect business sales and profit margins to rise this year and say supply chain problems and labor shortages are easing, which could be good news for the inflation outlook.

In terms of news from overseas central banks, the European Central Bank, the Bank of Japan and the Bank of Canada will all announce interest rate decisions this week.

The European Central Bank will hold its first interest rate meeting this year on Thursday. However, judging from recent speeches by some ECB policymakers, the ECB does not seem ready to declare victory in the battle against inflation. Therefore, traders' bets on the ECB's rapid interest rate cuts have repeatedly wavered recently.

But traders still expect the European Central Bank to follow the Fed's blockbuster signal of cutting interest rates, and are betting that the rate cut cycle is expected to start in April. Overall, analysts and interest rate futures traders generally expect the European Central Bank to cut interest rates for the first time in April and are pricing in a rate cut of up to 135 basis points.

Focus stocks

Tesla will report its fourth-quarter 2023 earnings on Thursday, when investors will pay close attention to its profitability and deliveries. A few days ago, Tesla just announced a significant price cut and the suspension of production at the Berlin factory. Data released at the beginning of this month showed that Tesla’s delivery volume in the fourth quarter was not as good as BYD’s, and it lost the global pure electric vehicle sales crown.

Analysts believe that Tesla's continued price cuts to stimulate market demand and the rising costs caused by increasing the production of Cybertruck pickup trucks have put the company under increasing pressure.

BofA Securities issued a report, predicting that Microsoft's second-quarter revenue is expected to rise 17% year-on-year to US$60.9 billion, benefiting from the continued strong growth of Azure and M365, which will offset weak personal computer shipments in the fourth quarter. It is also expected that foreign exchange will provide room for growth of 2% in the second quarter.

The bank said that the average selling price of the chatbot tool M365Copilot has accelerated, driving 20% ​​growth in its office software. M365Copilot's commercial office revenue is expected to reach US$389 million this year, but the moderate penetration rate has translated into meaningful average selling price growth.

The target price of Microsoft was raised from US$430 to US$450, and the rating was maintained as "buy". Growth is expected to accelerate this year.

Northland downgraded AMD stock to market perform.

The U.S. Federal Aviation Administration (FAA) on Sunday recommended that Boeing 737-900ER aircraft be inspected to ensure that the doors are installed correctly. The FAA said that the focus of the inspection was the door plug in the middle of the aircraft. The 737-900ER model uses the same door plug design as the 737 MAX9 model that had a previous door fly-out accident. The 737-900ER model is currently used by many airlines around the world.

According to media reports, the U.S. securities regulatory authorities are investigating B.B., a well-known Wall Street financial institution. Riley Financial (RILY.US) has reached a new agreement with a client who is under surveillance on suspicion of securities fraud, and used the client's assets to help the investment bank obtain a loan from Japanese financial giant Nomura Holdings. However, B. Riley stressed in a statement that the agency was not aware of any matter being investigated by the Securities and Exchange Commission (SEC) and would cooperate if that occurred.