US stocks push into new highs as investors await key earnings reports

Main equity indexes in the US opened in positive territory on Wednesday.
S&P 500 set a new all-time high near 5,000.
Investors keep a close eye on earnings reports.

The S&P 500 (SPX) index rose 0.80% to close the session at 4,993.95. The Dow Jones (DJIA) climbed 0.39% to end at 38,672.1, while the Nasdaq (IXIC) rise 0.92% to finish at 15,752.79.

Stock market news

The Technology Sector is the best-performing S&P 500 major sector, rising 1%. The Real Estate Sector is down 0.15%.
Enphase Energy Inc (ENPH) is the top gainer in the S&P 500, with an increase of nearly 18%. V.F. Corp (VFC) is the top decliner, losing more than 13%.
The data from the US showed that the goods and services deficit was $62.2 billion in December, up $0.3 billion from $61.9 billion in November.
The Federal Reserve published December's Consumer Credit Change on Wednesday, showing a steep pullback in consumer credit growth.
The Fed's Consumer Credit Change showed consumers added $1.56 billion in additional borrowing, far below the $16 billion forecast and declining steeply from the previous month's $23.75 billion.
In an interview with CNBC on Wednesday, Minneapolis Fed President Neel Kashkari said they can dial back the policy rate quite slowly if the labor market continues to be strong. "At the moment, two to three rates cuts this year seems appropriate," he added.
Late Tuesday, Qatar, acting as a mediator, said that Hamas had given a "generally positive" response to a proposed truce deal with Israel. Although it's too early to say whether there will be further progress in peace talks, a de-escalation of the conflict in the Middle East could attract risk flows. According to Israel's Channel 13, an Israeli official said that some of the demands made by Hamas in the counterproposal were entirely unacceptable.
Alibaba Group Holdings Ltd. (BABA) reported Q3 adjusted net income of RMB 47,951 million and Q3 revenue of RMB 260,348 million on Wednesday. In its earnings report, the company said that the board of directors approved an increase of $25 billion to the share repurchase program. “Our top priority is to reignite the growth of our core businesses, e-commerce and cloud computing,” Alibaba said, per Reuters.
Uber Technologies Inc (UBER) announced Q4 net income of $1.4 billion and Q4 gross bookings of $37.6 billion. Net revenue for that period was $9.94 billion. "Uber's platform advantages and disciplined investment in new growth opportunities resulted in record engagement and accelerating Gross Bookings in Q4," Chief Financial Officer Prashanth Mahendra-Rajah said, per Reuters.
Walt Disney Company (DIS), ARM Holdings PLC (ARM) and Paypal Holdings Inc (PYPL) are among top companies scheduled to announce earnings after the closing bell on Wednesday.
Federal Reserve Bank of Philadelphia President Patrick Harker said on Tuesday that the central bank made the right choice last week to maintain interest rates steady amid an outlook that likely heralds more inflation declines. “The data point to continued disinflation, to labor markets coming into better balance, and to resilient consumer spending—three elements necessary for us to stick to the soft landing we remain optimistic to achieve,” he added.
The CME FedWatch Tool shows that markets are pricing in a 21.5% probability of a 25 basis points Fed rate cut in March.
The Standard & Poor's 500 major equity index etched in a fresh all-time high on Wednesday and is within a stone's throw of breaching $5,000 for the first time ever.

S&P 500 daily chart

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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