US stocks rose as investors await the next batch of earnings from some of the world’s biggest companies and mull whether the Federal Reserve will slow its pace of interest-rate hikes after assessing weak economic data.
(Bloomberg) — US stocks rose as investors await the next batch of earnings from some of the world’s biggest companies and mull whether the Federal Reserve will slow its pace of interest-rate hikes after assessing weak economic data.
The S&P 500 climbed more than 1%, buoyed by technology and health-care stocks. The tech-heavy Nasdaq 100 also rose, paring losses of more than 1%. US-listed Chinese shares plunged after that nation’s equity index tumbled as President Xi Jinping solidified his power. Among the megacap companies slated to report earnings this week are Alphabet Inc., Microsoft Corp. and Meta Platforms Inc.
US equities are rallying despite a “growing acceptance” that monetary policy will likely remain restrictive for longer than expected just a few weeks ago, wrote 22V Research’s Dennis Debusschere, wrote in a note to clients.
“That is a significant shift in the market narrative from ‘a pivot will save equities,’ toward a foundation that can support a sustainable increase in risk assets,” he said.
Earnings remain in focus, with investors still on edge over whether companies that are among the key profit-growth engines for the S&P 500 can deliver profits with inflation crimping margins. Of the almost 20% of companies that have reported so far, roughly 58% posted positive surprises in both revenue and earnings per share, according to data compiled by Bloomberg. As the Fed attempts to stomp out inflation, latest earnings displaying resilience and showing few signs of recession may be making some investors uneasy on equities.
“Over the short-term, we think we can get some relief. The fact that earnings season has also been relatively strong is also helpful,” Andrew Sheets, Morgan Stanley’s chief cross-asset strategist, said on Bloomberg Television. “But the big picture — and I don’t think this changes — is that we still view this as a bear market rally rather than the start of a larger new bull market.”
Fed policy is also still a key focus for investors. Reports that the Fed may soon start reducing the size of its rate hikes pushed stocks higher by more than 2% on Friday. San Francisco Fed President Mary Daly’s comments on Friday also added to the tentative optimism. Data Monday indicated that Fed tightening is starting to hit the economy, with Purchasing Managers’ Index indicators showing contraction in the services and manufacturing sectors. But some investors are still cautious in their expectations that the central bank is moderating its rhetoric.
“We are still agnostic as to whether the Fed really is going to pivot or be at the peak of its hawkish cycle,” said Lisa Erickson, senior vice president and head of public markets group at US Bank Wealth Management. “If you look at the underlying data, inflation remains sticky, particularly in services ex-housing, which can often be more persistent. So given the Fed’s dependence on the data, we’re not clear exactly again, when the Fed may truly begin to slow down.”
The central bank needs to maintain a balance between addressing inflation and reacting appropriately to any signs of slowdown in inflation, Erickson said.
A gauge of the dollar strength rose. UK bonds posted some of their biggest gains on record as investors bet incoming Prime Minister Rishi Sunak will restore credibility to economic policy making.
Read More: Yellen Sees Environment Where US Financial Risks Could Emerge
Key events this week:
- Earnings due this week include: Apple, Microsoft, Exxon Mobil, Ford Motor, Credit Suisse, Airbus, Alphabet, Amazon, Bank of China, Boeing, Caterpillar, Cnooc, Coca-Cola, HSBC, Intel, McDonald’s, Mercedes-Benz, Merck, Samsung Electronics, Shell, UBS, UPS, Vale, Visa, Volkswagen
- US Conference Board consumer confidence, Tuesday
- Bank of Canada rate decision, Wednesday
- ECB rate decision, Thursday
- US GDP, durable goods orders, initial jobless claims, Thursday
- Bank of Japan policy decision, Friday
- US personal income, personal spending, pending home sales, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 1.2% as of 2:46 p.m. New York time
- The Nasdaq 100 rose 0.9%
- The Dow Jones Industrial Average rose 1.5%
- The MSCI World index rose 1.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro was little changed at $0.9870
- The British pound fell 0.2% to $1.1285
- The Japanese yen fell 0.9% to 148.94 per dollar
Cryptocurrencies
- Bitcoin fell 0.8% to $19,336.57
- Ether rose 0.7% to $1,339.83
Bonds
- The yield on 10-year Treasuries advanced two basis points to 4.23%
- Germany’s 10-year yield declined nine basis points to 2.33%
- Britain’s 10-year yield declined 31 basis points to 3.75%
Commodities
- West Texas Intermediate crude fell 0.6% to $84.57 a barrel
- Gold futures fell 0.2% to $1,652.80 an ounce
–With assistance from Emily Graffeo and Robert Brand.
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