The S&P 500 index is approaching the 5000 points threshold

In this article, Alain Freymond, our Group Chairman, and Ahmad Saidali, our Group CEO, provide insights into the sustained trend of the S&P 500 index, driven by the decrease in bond supply and yields

A trend sustained by the reduction in bond supply and yields

As the week shapes up to be one of the most intense periods for corporate earnings announcements in the United States, particularly from technology "blue chips," the S&P 500 index continues its surge, surpassing the 4900-point threshold. The bullish momentum initiated in November will mark its third consecutive month of uninterrupted gains by the end of January. The previous peak in December 2021 is now surpassed, while enthusiasm grows and may already hint at an excess of investor confidence.

It is true that inflation continues to pleasantly surprise, and economic dynamics are supported by consistently strong consumption. The week will also be marked by comments from the Federal Reserve (Fed), which could either confirm the gradually established optimism or challenge it. Additionally, there is a renewed positive trend in the bond market, linked to the refinancing needs of the U.S. Treasury (quarterly needs reduced to only 760 billion), which appear significantly lower compared to recent levels of bond issuances.

The rise in interest rates during the summer of 2023, driven by record issuances and quantitative tightening by the Fed, has been supported. A decrease in these two effects in the bond markets could reignite the temporarily interrupted downward trend observed in January. We believe that following the recent rebound from 3.8% to 4.2% in January, yields on the U.S. ten-year Treasury have once again entered a vulnerable zone, likely to be followed by a new decline. In this context, the investment climate still appears favorable enough to support a continuation of the upward trend in the financial markets, propelling the S&P 500 index towards the 5000-point threshold.