The relentless rally in big tech, options positioning and bets on a Federal Reserve pause following a mixed jobs report put stocks on the verge of a bull market.

An advance of about 1.5 per cent for the S&P 500 extended the benchmark’s surge from its October low to nearly 20 per cent. A gauge of megacaps like Tesla Inc. and Apple Inc. saw its sixth straight week of gains — the longest winning run in almost two years. Broadcom Inc. climbed after predicting that sales tied to artificial intelligence will double this year.

As stocks gained, Wall Street’s “fear gauge” plummeted to its lowest level since February 2020. The Cboe Volatility Index, or VIX, dropped below 15 from an average of 23 in the past year. The risk-taking mode also drove the Russell 2000 index of small caps — the home of several regional banks — up about 3.5 per cent 

“The impressive run for equities continues to drive retail investors into the market,” said Mark Hackett, chief of investment research at Nationwide. “Investors have spent much of the past three years obsessed by the Fed, inflation, and payrolls, though volatility around those reports has settled, reflecting a less emotional market. This is bullish, as less reactivity is a sign of a healthy market.”

OPTIONS POSITIONING

To Andrew Brenner at NatAlliance Securities, the melt-up in equities has a lot to do with one thing: positioning.

“Options traders were off sides,” Brenner said. We think they will get back next week, “and the rally will run out of steam,” he added.

Indeed, the stock advance doesn’t mean the market isn’t facing headwinds, according to Quincy Krosby, chief global strategist at LPL Financial. Among the risks, she cites the potential ramifications of the deluge of Treasury notes — approximately US$1 trillion — to be auctioned as the U.S. department replenishes its general account following a debt-limit deal.

“That the Fed has telegraphed that June 14 is off the table for a rate hike no doubt reflects its concerns regarding the potential for increased market volatility stemming from dissipating liquidity,” Krosby said. “Still, today’s across-the-board rally confirms that the market doesn’t see an impending recession despite the incessant calls for one.”

Signs of labor-market slackening in May despite a pickup in hiring could strengthen the argument from Chair Jerome Powell and other officials that they should take more time to assess incoming data and the evolving outlook before raising rates again.

FED WAGERS

Wall Street’s reaction to the latest jobs report showed bets that another Fed hike is likely in the bag — but that wouldn’t necessarily happen in June.

Two-year yields, which are more sensitive to imminent central bank moves, jumped 15 basis points to 4.5 per cent. Swaps are pricing almost a quarter-point hike across the next two Fed meetings. But indicating a less than 50 per cent chance of that happening this month.

“The key question now is: can they wait until July or does this monster payrolls number trigger another burst of urgency?” said Seema Shah, chief global strategist at Principal Asset Management. “Perhaps the report details, with the unemployment rate rising and average hourly earnings growth slowing, tilts the decision to July.”

The Fed should be open to raising interest rates by a half percentage point in July if it opts to hold off from tightening this month, former Treasury Secretary Lawrence Summers said.

“We are again in a situation where the risks of overheating the economy are the primary risks that the Fed needs to be mindful of,” the Harvard University professor said in an interview with Bloomberg Television’s David Westin on Friday.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.4 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.7 per cent
• The Dow Jones Industrial Average rose 2.1 per cent
• The MSCI World index rose 1.5 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.2 per cent
• The euro fell 0.5 per cent to US$1.0708
• The British pound fell 0.6 per cent to US$1.2450
• The Japanese yen fell 0.8 per cent to 139.97 per dollar

Cryptocurrencies

• Bitcoin rose 1.4 per cent to US$27,251.37
• Ether rose 2.1 per cent to US$1,908.83

Bonds

• The yield on 10-year Treasuries advanced 10 basis points to 3.69 per cent
• Germany’s 10-year yield advanced six basis points to 2.31 per cent
• Britain’s 10-year yield advanced four basis points to 4.16 per cent

Commodities

• West Texas Intermediate crude rose 2.7 per cent to US$71.98 a barrel
• Gold futures fell 1.5 per cent to US$1,965.20 an ounce