Where Did the Rally Come From?

 After another good session for US equities on Thursday, the S&P 500 is up 9.3% for the year, while the Nasdaq Composite is now in the black by more than 20%. 

Not Earnings

Not Rates

The rally has happened while bond yields, previously seen as vital to the stock market’s resurgence, have stayed roughly where they were. The yield on 10-year Treasuries advanced eight basis points to 3.65% on Tuesday, its highest since the Silicon Valley Bank failure in early March

The market still thinks that the Fed will be easing by the end of the year — but it’s significantly less certain than it was Jan 1.

Maybe It’s the Liquidity Then

Virtually all of the S&P 500’s gain for the year (barring this week’s surge) can be traced to the 7.5% rally from March 13 to April 13, which took it from 3,856 to 4,146. 

This coincided with the creation and growth of the BTFP as well as an expansion of the Fed’s balance sheet in response to the collapse of SVB and Signature Bank

There’s one final ingredient to explain this year’s rally, and in particular the performance of the last few days: artificial intelligence.

This week’s latest example comes from an ultra-bullish interview that Jensen Huang, the CEO and founder of the chipmaker Nvidia Corp., gave to CNBC on Wednesday:

We have reinvented computing for the first time since the IBM System 360, 60 years ago. There’s a trillion dollars worth of data center infrastructure installed in the world based on that old method of doing computation. Now we have accelerated computing, and we have the killer app for generative computing: generative AI.

Nvidia’s share price. A 5% gain on Thursday meant that its market cap has risen by $82.5 billion in the four trading days so far this week. 

John Authers Bloomberg 19 maj 2023


The US stock market looks really, really weird

John Authers Bloomberg 16 maj 2023 

It can’t carry on like this much longer.

John Authers Bloomberg 8 maj 2023

Carl Icahn admits mistake with bearish bet that cost $9bn

Carl Icahn has admitted he was wrong to make a huge bet that the market would crash after the ill-fated trade cost his group nearly $9bn over roughly six years.

“I’ve always told people there is nobody who can really pick the market on a short-term or an intermediate-term basis,” Icahn told the FT in an interview to discuss the analysis. “Maybe I made the mistake of not adhering to my own advice in recent years.”

FT 18 May 2023


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