S&P 500 Floats Near All-Time Highs on Policy Decisions and Trump's Tariffs

U.S. equity markets exhibited a mixed performance on Tuesday, commencing a shortened trading week marked by policy considerations from the Federal Reserve and President Donald Trump. The benchmark S&P 500 (^GSPC) climbed nearly 0.2%, propelled by gains concentrated in the final 10 minutes of trading. This surge propelled the index to a record-breaking close of 6,129.58, completing a month's-long rally. The Dow Jones Industrial Average (^DJI) and Nasdaq Composite (^IXIC) finished marginally positive.

Traders were cautious after Monday's Presidents Day holiday, with investors deliberating over the prospective path of interest rates. Fed officials emphasized during the long weekend their unwavering belief in maintaining current rates to combat rising inflation. Treasury yields edged higher as investors sought further insight on the likelihood of rate cuts this year, given that recent data had yielded no clear direction. The 10-year yield reached 4.54%.

The uncertainty amplified the significance of Wednesday's release of minutes from the Fed's January meeting, which may provide further insights into policymakers' perspectives amidst Trump's tariffs. Simultaneously, the markets were captivated by ongoing US-Russia talks aimed at ending the Ukraine conflict, following meetings between Trump and Putin's teams in Saudi Arabia on Monday.

Earnings Season Continues with China's Tech Sector in Focus

Earnings season continued to be a focal point, with results anticipated from 46 S&P 500 companies this week. Baidu's (BIDU, 9888.HK) report, which revealed a revenue decline, kicked off a flurry of imminent results from China's trillion-dollar tech industry, including Alibaba (BABA) on Thursday.

Individually, Intel (INTC) emerged as a notable gainer, experiencing an impressive 16% surge amid rumors that its competitors were exploring deals that could result in the chipmaker's division.

Chip Stocks Lead Tech-Driven Rally

The S&P 500 witnessed a quiet day, with major indexes exhibiting minimal movement. However, underlying the surface, there was significant buying activity within the index. About 70% of S&P 500 companies outperformed the index on Tuesday, with over 170 stocks gaining more than 1% intraday. Notable movers included Intel (INTC) and Walgreens (WBA), which continued to fuel rumors of potential M&A deals, resulting in their stock prices soaring by over 10%. Super Micro Computer (SMCI), a popular AI player, rose by over 16%.

Cross-Asset Performance and Risks

According to Bank of America's most recent fund manager survey, cash levels have dipped to 15-year lows as investors double down on equities. The "Long Magnificent 7" remains the most prevalent trade, cited by 56% of participants. Global equities are now perceived as the best-performing asset class by investors (34% versus 21% in January), eclipsing US equities (18% versus 27%).

A global trade war has emerged as the leading risk for assets this year, according to 42% of survey respondents. A recessionary trade war was identified by almost 40% as the most significant "tail risk," followed by inflation prompting Fed rate hikes and the possibility of an AI bubble.

European Stocks Paused Amid Ukraine Talks

European equities stabilized on Tuesday as the US and Russia initiated discussions on ending the Ukraine war, following a Monday rally driven by defense-related names. Presidents Trump and Putin dispatched teams to the talks in Saudi Arabia, excluding Ukraine and Europe. In response, regional leaders held an emergency summit in Paris, pledging to increase defense spending.