A rally in big tech drove stocks higher, with traders counting on the earnings season to see whether the enthusiasm around artificial intelligence will justify this year’s market advance.

The S&P 500 hit its highest since April 2022, while the Nasdaq 100 outperformed ahead of earnings from Microsoft Corp. and Alphabet Inc. The Dow Jones Industrial Average saw its 12th straight advance — the longest winning run on over six years. On the eve of the Federal Reserve decision, consumer confidence data bolstered the soft-landing narrative — while suggesting policymakers aren’t done with their inflation fight yet.

With the S&P 500 just about 5 per cent away from its all-time high, elevated bullish positioning and indicators pointing to overbought levels, many investors are counting on earnings to make a decision on where to go from here. That’s especially true when it comes to big tech, with the Nasdaq 100 continuing to push higher even after an over US$5 trillion rally that has spurred concerns about overstretched valuations.

“The next couple of weeks will be when the proverbial rubber hits the road for the Nasdaq 100,” said Matthew Weller, global head of research at Forex.com and City Index. “With the index still hovering near bull-market highs and up more than 40 per cent on the year, investor expectations are clearly elevated — leaving little room for error.”

Treasury two-year yields, which are more sensitive to imminent Fed moves, dropped four basis points to 4.88 per cent. The dollar halted a five-day advance. Rates on swap contracts continued to price in a quarter percentage-point Fed hike on Wednesday, with an additional 12.5 basis point increase factored in by year-end. That indicates a 50 per cent likelihood of another quarter-point move.

In other corporate news, Banc of California climbed on a news report it’s in advanced talks to buy PacWest Bancorp, which fell. General Electric Co. and 3M Co. climbed after reporting earnings that blew past Wall Street’s expectations. IRobot Corp. dropped after Amazon.com Inc. said it’s paying less to acquire the Roomba maker.

TOO MANY BULLS

There are so many bulls in the U.S. stock market that any disappointment on the economy or earnings poses a risk to the rally, according to Citigroup Inc. strategists. Investor exposure to the S&P 500 remains extended and one-sided, even after bullish momentum has waned in recent weeks, a team including Chris Montagu said.

Given that Wall Street had set a low bar coming into the reporting season, roughly 80 per cent of the companies have thus far beaten profit estimates, according to data compiled by Bloomberg.

“We are about to enter the height of earnings season,” said Brad Bernstein, managing director at UBS Wealth Management. “As long as earnings continue to exceed expectations, the market can continue to move higher.”

For traders who closely follow Fibonacci analysis, the S&P 500 Index this month crossed above 4,505 to reach the 76.4 per cent retracement of its peak-to-trough decline from its January 2022 high and its subsequent October low.

Since 1929, when the benchmark equities gauge suffered a bear market decline of at least 20 per cent or more, this retracement level proved to be the start of a new uptrend, according to data compiled by Bloomberg Intelligence. So the index finishing above that level implies a bottom has definitely been set.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.3 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.7 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index rose 0.5 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.2 per cent
• The euro was little changed at US$1.1053
• The British pound rose 0.6 per cent to US$1.2900
• The Japanese yen rose 0.4 per cent to 140.88 per dollar

Cryptocurrencies

• Bitcoin rose 0.2 per cent to US$29,193.95
• Ether rose 0.3 per cent to US$1,856.89

Bonds

• The yield on 10-year Treasuries advanced one basis point to 3.88 per cent
• Germany’s 10-year yield was little changed at 2.43 per cent
• Britain’s 10-year yield advanced one basis point to 4.27 per cent

Commodities

• West Texas Intermediate crude rose 1.1 per cent to US$79.59 a barrel
• Gold futures rose 0.2 per cent to US$2,005.20 an ounce