Stocks struggled to gain traction after a rally that’s already topped US$4 trillion this year, with Nvidia Corp. leading losses in big tech.

Trading was largely driven by rebalancing at the end of a quarter that saw the S&P 500 climbing almost 10 per cent. With the equity outperformance, pensions may need to sell roughly $22 billion in global stocks and buy $17 billion of fixed income in order to return to prior asset allocation levels, according to a recent estimate from Morgan Stanley.

The U.S. equity benchmark is on track to notch five straight months of gains from November through March — a feat only accomplished one other time this century in 2013. Now, traders are debating whether the road gets rougher for the rally to keep chugging along as stock valuations remain elevated relative to history.

“We still expect to see normal pullbacks along the way,” said Keith Lerner at Truist Advisory Services. “However, until the weight of the evidence shifts, we suggest investors stay with the primary market trend, which is up, and look to pullbacks as opportunities.”

The S&P 500 hovered near 5,200, with Nvidia halting a six-day rally. United Parcel Service Inc. slumped over 8 per cent as investors saw its long-term sales target as hard to meet. Former president Donald Trump’s startup Trump Media & Technology Group Corp. climbed in its first session as a publicly traded company.

“As momentum slows and breadth diverges, we believe the S&P 500 could benefit from a healthy pullback of at least 5 per cent toward its 50-day moving average — a level last tested in early November,” said Craig Johnson at Piper Sandler.

As the big debate unfolds on how concentrated or broad this year’s S&P 500 rally has been, there’s data to support both arguments.

After the year kicked off with gains focused on tech-heavy sectors, the rally has broadened out to other groups like commodities and industrials. However, looking at the contribution to total returns, 60 per cent of gains in the gauge have been driven by just six stocks: Nvidia, Microsoft Corp., Meta Platforms Inc., Amazon.com Inc., Eli Lilly & Co. and Broadcom Inc.

The artificial intelligence furor gripping the stock market has made chipmakers like Nvidia increasingly crucial to the broader S&P 500 rally. The stocks are no longer cheap, adding a new level risk to further gains in the equity benchmark.

The Philadelphia Stock Exchange Semiconductor Index is priced around eight times sales, the highest in at least two decades, according to data compiled by Bloomberg. The S&P 500, by contrast, is priced around 3 times sales. Relative to the broader benchmark, the chip index is higher than it was during the dot-com peak in 2000.

As traders geared up for the Fed’s preferred inflation gauge on Friday — when markets will be closed — they parsed the latest economic readings. U.S. consumer confidence held steady, durable goods orders climbed while home-price growth accelerated at the fastest rate since 2022.

“Expect some churning in the market over the coming quarters with mixed data and a question on how long the Fed intends to pause,” said Victoria Fernandez at Crossmark Global Investments. “We would not be surprised to see another rate cut priced out of the market pushing yields slightly higher from current levels as economic data continues to show strength and current levels don’t appear to be very restrictive.”

For stocks to warrant their multiple expansion in recent months, global central banks must ease monetary policy this year and companies have to deliver healthy earnings growth, according to JPMorgan Chase & Co.’s Marko Kolanovic.

“Overall, if central banks turn out to be more dovish than currently projected, but without this being accompanied by growth disappointments, present equity multiples could be defended,” he wrote this week. If earnings disappoint and central banks are more restrictive, equity multiples would need to fall, he added.

Bank of America Corp.’s institutional, retail, and hedge fund clients were all net sellers of U.S. equities in the week ended March 22, while corporations purchasing their own shares were the sole net buyers.

The S&P 500 is on track to see its fifth-straight month of gains with a cumulative price return of about 25 per cent over the period. The rise has been aided by an economy that has exceeded expectations, forward corporate earnings estimates that have moved to record highs, technology leadership, and expectations that the Fed will start lowering rates later this year, according to Lerner at Truist.

“Strong price momentum, like we have seen over the past five months, tends to occur in the midst of bull markets and is a sign of underlying strength,” he noted.

While markets appear to be getting stretched, similar past periods of strength have also tended to be a positive when looking out 12 months — with stocks up every time and showing an average gain of 14 per cent, Lerner added.

“Stocks have moved higher in the first quarter in anticipation of the first rate cuts,” said Anthony Saglimbene at Ameriprise. “We have likely already entered a period where the Federal Reserve is now less likely to surprise the market from here on out.”

Overall, it’s likely that prices keep pushing up into late March given no evidence of technical deterioration, according to Mark Newton at Fundstrat Global Advisors.

“I continue to see the U.S. stock market as being attractive, technically speaking, and do not feel sufficient risk is there to warrant a selloff at this time,” Newton said.

A rally in the S&P 500 to 5,350-5,400 is definitely possible into mid-April — before a consolidation gets underway, he concluded.

Corporate Highlights:

  • Apple Inc. iPhone shipments in China fell about 33 per cent in February from a year earlier, according to official data, extending a slump in demand for the flagship device in its most important overseas market.
  • Dell Technologies Inc. cut 13,000 employees over the last fiscal year, a steeper reduction in headcount than initially announced.
  • McDonald’s Corp. will bring Krispy Kreme Inc.’s doughnuts to its restaurants across the U.S., marking the burger chain’s latest effort to attract diners for breakfast and all-day snacking.
  • Short sellers are still betting billions of dollars that the rally in cryptocurrency-linked stocks fueled by a surge in Bitcoin will eventually end.
  • Total short interest, or the amount that contrarian traders have pledged against crypto stocks, has increased to nearly $11 billion this year, according to a report from S3 Partners LLC on Monday. More than 80 per cent of total short interest in the sector are bets against MicroStrategy Inc. and Coinbase Global Inc.
  • Michael Novogratz’s Galaxy Digital Holdings Ltd. swung to a profit in the fourth quarter, bolstered by rising digital asset prices and increased trading volumes.
  • Viking Therapeutics Inc. unveiled results from an early study of its experimental weight-loss pill, a product expected to compete with popular obesity shots.
  • Rite Aid Corp. is nearing a deal with key bondholders and other creditor groups that will allow the pharmacy chain to avoid a liquidation, according to people with knowledge of the matter.

Key events this week:

  • China industrial profits, Wednesday
  • Bank of England issues financial policy committee minutes, Wednesday
  • Eurozone economic confidence, consumer confidence, Wednesday
  • Fed Governor Christopher Waller speaks, Wednesday
  • UK GDP revision, Thursday
  • U.S. University of Michigan consumer sentiment, initial jobless claims, GDP, Thursday
  • Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday
  • U.S. personal income and spending, PCE deflator, Friday
  • Good Friday. Exchanges closed in U.S. and many other countries in observance of holiday. U.S. federal government is open.
  • San Francisco Fed President Mary Daly speaks, Friday
  • Fed Chair Jerome Powell speaks, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 0.3 per cent as of 4 p.m. New York time
  • The Nasdaq 100 fell 0.4 per cent
  • The Dow Jones Industrial Average was little changed
  • The MSCI World index fell 0.1 per cent

Currencies

  • The Bloomberg Dollar Spot Index was little changed
  • The euro was little changed at $1.0830
  • The British pound was little changed at $1.2625
  • The Japanese yen fell 0.1 per cent to 151.58 per dollar

Cryptocurrencies

  • Bitcoin fell 2 per cent to $69,538.32
  • Ether fell 1.9 per cent to $3,561.06

Bonds

  • The yield on 10-year Treasuries declined two basis points to 4.23 per cent
  • Germany’s 10-year yield declined two basis points to 2.35 per cent
  • Britain’s 10-year yield declined two basis points to 3.97 per cent

Commodities

  • West Texas Intermediate crude fell 0.6 per cent to $81.49 a barrel
  • Spot gold rose 0.3 per cent to $2,177.89 an ounce