Wall Street limps to all-time high as ‘sugar rush’ fades

A month ago, the S&P 500 seemed to be heading towards an all-time high in a broad-based rally that had raised hopes for further gains this year. But on Friday afternoon, when the index finally cleared the bar, it was being carried by just a few large tech stocks as markets more broadly struggle for direction.

The S&P closed at 4,839.81, eclipsing its previous high from January 2022, a milestone that reflects the widespread belief that the Federal Reserve is on track to successfully bring inflation under control without causing a major recession, executing a so-called soft landing.

But the enthusiasm that drove a rally of almost 16 per cent in the last two months of 2023 has ebbed in the new year. The main Wall Street benchmark has taken three weeks to add another 1.5 per cent, as recent economic data reignited the debate over how soon central banks will start cutting interest rates.

The shaky final stretch to Friday’s record highlights how further gains will rely on the Fed continuing to walk a delicate tightrope.

“That soft landing is a thread-the-needle event that is not easy to do, and that’s why we have very few throughout history,” said Jurrien Timmer, director of global macro at Fidelity, the asset manager. “There are ways that this perfect goldilocks scenario could be upended.”

New economic data had already “taken a bit of the wind out of the sails” of the market, said David Kelly, chief global strategist at JPMorgan Asset Management. “I think the environment is relatively good for stocks but don’t expect a big rally this year.”

A record high for the S&P, he added, was “less meaningful because the momentum that carried us over the finish line [was] weaker”. The tech-concentrated Nasdaq Composite remains below its previous record close.

Most investors say they have not changed their longer-term assumptions of falling interest rates and decent corporate earnings growth, but the new economic figures have been enough to put the brakes on…