Stocks failed to hold onto gains, with a gloomy forecast from giant chipmaker Nvidia Corp. weighing on technology shares and traders awaiting this week’s inflation data for clues on the pace of Federal Reserve rate hikes.
(Bloomberg) — Stocks failed to hold onto gains, with a gloomy forecast from giant chipmaker Nvidia Corp.
weighing on technology shares and traders awaiting this week’s inflation data for clues on the pace of Federal Reserve rate hikes.
The S&P 500 wiped out an advance that reached 1% earlier in the day, while the Nasdaq 100 underperformed after a rally that briefly drove the tech-heavy gauge 20% above its June low.
A plunge in Nvidia dragged the Philadelphia Semiconductor Index down 2.5%. Treasuries climbed.
Mounting risks to growth have sparked earnings downgrades, and after recent figures showed gross domestic product shrank for a second straight quarter, some strategists have warned that cuts are only set to ramp up.
Friday’s blowout jobs report spurred JPMorgan Chase & Co. and Evercore ISI to say bigger US rate hikes are now in store this year, with Citigroup Inc. seeing a risk of a 1 percentage-point hike in September.
“The economy still has to digest all this tightening and that will materially slow things,” wrote Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter.
“That hasn’t even really started to occur yet, so celebrating the resilience of earnings and economic data when we’re still in an expanding economy (regardless of the GDP prints) seems to be the equivalent of a coach declaring victory because the game plan should work.”
Morgan Stanley’s Mike Wilson, who correctly predicted this year’s equity selloff, called the recent rebound a “bear market rally” amid growing fears of a recession.
While he believes inflation has peaked and “will probably fall faster than the market currently expects,” that still doesn’t bode well for stock markets as it’ll reduce operating leverage and weigh on company earnings, he said.
In fact, as major equity indexes climbed last week, global hedge funds unwound risky bets.
That highlights a sentiment gap between professional speculators displaying a risk-off mood amid uncertainty about the aggressive pace of rate hikes and price action in the stock market, which seemed to reflect a takeaway from Fed Chair Jerome Powell’s press conference that monetary officials will taper the size of rate hikes if growth crumbles.
“Countertrend rallies are characteristic of secular bear-market downtrends, and from that perspective, 2022 has been remarkably similar to previous bear markets in history,” said Seema Shah, chief global strategist at Principal Global Investors.
“Until inflation abates and the Federal Reserve rebalances its priorities away from inflation and toward growth, tempting rallies are likely to remain unsustainable.”
Consumer expectations for US inflation over the coming years declined sharply in the latest survey by the Fed Bank of New York, with a recent drop in gasoline prices playing a big part in those results and likely contributing to a lower headline rate of inflation for July when the Labor Department releases the data on Wednesday.
Still, almost all inflation measures are running well above the Fed’s 2% target.
What to watch this week:
- US CPI data, Wednesday
- Chicago Fed President Charles Evans and his Minneapolis counterpart Neel Kashkari due to speak, Wednesday
- US PPI, initial jobless claims, Thursday
- San Francisco Fed President Mary Daly is interviewed on Bloomberg Television, Thursday
- Euro-area industrial production, Friday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.2% as of 2:58 p.m.
New York time
- The Nasdaq 100 fell 0.6%
- The Dow Jones Industrial Average was little changed
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro was little changed at $1.0190
- The British pound was little changed at $1.2075
- The Japanese yen rose 0.1% to 134.87 per dollar
Bonds
- The yield on 10-year Treasuries declined six basis points to 2.76%
- Germany’s 10-year yield declined six basis points to 0.90%
- Britain’s 10-year yield declined 10 basis points to 1.95%
Commodities
- West Texas Intermediate crude rose 1.6% to $90.43 a barrel
- Gold futures rose 0.7% to $1,804.30 an ounce
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