Stocks rose ahead of economic data that will help shape Wall Street’s views on how close the Federal Reserve is from ending its rate hikes. Bonds were mixed. The dollar fell. Bitcoin briefly dropped below $25,000.
The S&P 500 approached 4,500 and the Nasdaq 100 rose 1.2%. Tesla rallied 10% as Morgan Stanley upgraded the company, saying its Dojo supercomputer may boost value by up to $500 billion.
Qualcomm climbed after Apple extended a deal with the chipmaker. Traders also geared up for the iPhone maker’s product unveiling Tuesday.
Charter Communications jumped after reaching an agreement with Disney on ending a blackout of ESPN for millions of pay-TV customers. J.M. Smucker slid after agreeing to acquire Twinkies maker Hostess Brands.
Traders also kept a close eye on negotiations between the United Auto Workers and automakers to prevent a strike, with the Biden administration deploying top officials to help facilitate the talks.
The UAW union said it’s ready to negotiate day and night with General Motors, Ford and Stellantis to reach an agreement by the Sept. 14 deadline.
U.S. consumers’ inflation expectations were mostly stable in August, but households grew more concerned about their finances and more pessimistic about the job market, according to a Fed Bank of New York survey.
The consumer price index report Wednesday will provide the latest insight into how much further the Fed may need to go to pull inflation back toward its target.
“This week is more likely to be a ‘good news is good, bad news is bad’ story,” said Chris Larkin, managing director of trading and investing at E*Trade from Morgan Stanley.
“The market’s ability to rebound in the near term could hinge on this week’s inflation numbers, especially Wednesday’s CPI.”
The market is in a late-cycle backdrop – a time when the Fed is expected to pause or reverse its hawkish policy stance – and more conservative equity factors, like high cash and low debt, have started to outperform, according to Morgan Stanley strategist Michael Wilson.
He reiterated his view that stock markets are not yet reflecting the risk of a recession.
“Bullishness is relatively high while the Fed remains shy of its inflation target,” John Stoltzfus, chief investment strategist at Oppenheimer, wrote.
He said investors should curb their enthusiasm for a long rate pause or even a rate cut and instead “right-size expectations.”
Some 26% of respondents in the latest MLIV Pulse survey say they plan to decrease their exposure to the U.S. equity benchmark over the next month.
That’s double the amount of those who plan to buy. Only 13% of respondents said they might expand their exposure.
The greenback retreated after a bullish streak as Asia’s biggest central banks took aim in different ways at its recent rally.
The People’s Bank of China gave a strong warning to speculators to steer clear of destabilizing the yuan, while the head of the Bank of Japan took a more subtle approach in hinting at the possibility of an eventual policy shift, sending the yen up about 1%.
Bitcoin dropped to the lowest since June.
The world’s largest digital token was on the verge of forming a “death cross” – a pattern in which the 50-day moving average falls below its 200-day marker.
Such a crossover typically signals a loss of short-term momentum and further selling pressure ahead.
Treasury two-year yields were little changed near 5%, while 10-year rates edged higher to about 4.3%.
The auction of three-year notes on Monday drew the highest yield since 2007, reflecting the recent bond-market sell-off driven by anticipation the Fede will keep rates elevated into next year.
Oil steadied near its highs of the year after rallying about 10% in recent weeks, with technical indicators that suggest its gains may be overdone sapping the benefit of risk-on sentiment in broader markets.
Meantime, short sellers are raking in profits by betting against a part of the U.S. equity market overlooked by most investors: small-cap stocks.
The group has seen paper profits of nearly $13 billion this year by wagering on a drop in the prices of small-, micro- and nano-cap shares, according to an estimate by S3 Partners based on the average amount of short positions in the market.
That’s in stark contrast to the roughly $140 billion in losses from short sales of mid-, mega- and large-cap stocks, which rallied for much of the year as the economy defied gloomy forecasts, the Fed edged closer to ending its rate hikes and breakthroughs in artificial intelligence triggered a stampede in tech stocks.
The wind is about to shift for the U.S. stock market, if history is any guide, says Bank of America.
With equities in the “recovery” phase of the business cycle, this year’s laggards – including value and small-capitalization stocks – are primed to outperform, upending the growth, large-cap leadership that has dominated 2023’s bull run, according to strategists led by Savita Subramanian.
