S&P 500 to open within a whisker of 5,000 as Arm results boost AI optimism

What’s driving markets

A major milestone looms for Wall Street’s main stock barometer. Optimism over corporate earnings, particular from big technology companies, alongside a stoic U.S. economic backdrop and acceptance that interest won’t start falling until later in the spring, has pushed the S&P 500 to within a whisker of breaching 5,000 for the first time.

After touching an intra-day high of 4,999.89 on Wednesday and closing at a record 4,995.06, futures indicate Thursday’s session will see the S&P 500 open just a tad softer around 4,994.

Well-received results from Walt Disney
DIS,
-0.15%
after Wednesday’s closing bell will be supporting sentiment — though that positivity may be somewhat counteracted by another disappointing earnings update from PayPal
PYPL,
-0.74%.

Perhaps more important for the S&P 500, and indeed the tech-rich Nasdaq Composite, is the 20% pop in shares of Arm Holdings
ARM,
+5.52%
after the chip designer delivered upbeat guidance and said it saw “increasing demand for new technology driven by all things AI.”

Much of the S&P 500’s 22.4% surge over the past 12 months has been powered by a belief that large technology companies such as Microsoft
MSFT,
+2.11%
and Nvidia
NVDA,
+2.75%
can deliver AI-related boosts to earnings.

“Overall, these earnings reports are likely to cheer the market,” said Kathleen Brooks, research director at XTB. “At the start of earnings season, a spate of poor reports from U.S. banks had weighed on earnings growth, however, now that the 10 other sectors have mostly reported earnings, the picture has brightened.”

Companies reporting on Thursday include ConocoPhillips
COP,
+0.72%,
Cameco
CCJ,
+0.90%
and Hershey
HSY,
-0.27%
before the stock market opens, followed after the close by Affirm
AFRM,
+2.72%,
Cloudflare
NET,
+2.16%
and Expedia
EXPE,
+0.44%.

Calmer conditions in bond markets also have helped the S&P 500 rally. The U.S. Treasury on Wednesday saw strong demand for its $42 billion auction of 10-year bonds
BX:TMUBMUSD10Y,
a sign the market is more relaxed about inflation and the timing of the Fed’s likely first rate cut being pushed back to May.

“The strong demand…hints that investors continue to binge-buy the U.S. 10-year paper while sitting patiently in the waiting room and watching the major U.S. [equity] indices’ record-breaking race,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The Treasury will auction $25 billion of 30-year bonds at 1 p.m. Thursday.

U.S. economic data published on Thursday include the weekly initial jobless claims report at 8:30 a.m. Eastern and December wholesale inventories at 10 a.m.

Richmond Fed President Tom Barkin is due to appear on Bloomberg Television at 8:30 a.m. and will also speak in New York at 12:05 p.m. Barkin told MarketWatch that it makes sense to be ‘patient’ before making rate cuts.