U.S. stocks rallied for a second straight session as investors braced for some of the world’s biggest companies to report earnings this week. Traders also wondered if the Federal Reserve would slow its pace of raising interest rates after assessing weak economic data released on Monday.
More than 80% of stocks in the S&P 500 index closed in the green on Monday, supported by gains from technology and health care companies. The Nasdaq 100 also rose more than 1%. Chinese stocks listed in the United States plunged after the country’s stock index fell as President Xi Jinping consolidated his power. Alphabet Inc., Microsoft Corp. and Meta Platforms Inc. are among the megacaps expected to report earnings this week.
10-year US Treasury yields ended the session around 4.25%. UK bonds posted some of their biggest gains on record as investors expect new Prime Minister Rishi Sunak to undo the damage done by his predecessor Liz Truss after his massive package of unfunded tax cuts shook the financial markets.
Earnings remain front and center in the U.S., with investors still nervous about whether companies that are among the top earnings growth drivers for the S&P 500 can generate profits with inflation-crimping margins . According to data compiled by Bloomberg, of the nearly 20% of companies that have reported so far, about 58% posted positive surprises in both revenue and earnings per share. As the Fed attempts to stifle inflation, the latest earnings showing resilience and showing few signs of a recession may have some investors worried about equities.
βIn the short term, we think we can get some relief. The fact that the earnings season has also been relatively strong is also helpful,β Andrew Sheets, Morgan Stanley’s chief multi-asset strategist, told Bloomberg Television. “But the bigger picture – and I don’t think that’s changing – is that we still view this as a bear market rally rather than the start of a new, larger bull market.”
Fed policy also remains a priority for investors. Monday’s data indicated that Fed tightening was beginning to hit the economy, with Purchasing Managers’ Index indicators showing contraction in the services and manufacturing sectors. Reports that the Fed may soon begin to scale back its rate hikes had pushed stocks up more than 2% on Friday. Comments from San Francisco Fed President Mary Daly on Friday also added to the tentative optimism. But some investors remain cautious in their expectations that the central bank will moderate its rhetoric.
“We still don’t know if the Fed will really pivot or be at the top of its hawkish cycle,” said Lisa Erickson, senior vice president and group head of public markets at US Bank Wealth Management. “If you look at the underlying data, inflation remains sticky, particularly in non-housing services, which can often be more persistent. So given the Fed’s reliance on data, we don’t know not yet exactly when the Fed might really start to slow.
The central bank must maintain a balance between fighting inflation and responding appropriately to any signs of slowing inflation, Erickson said.
Key events this week:
- Revenue due this week includes: 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, first 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 major movements in the markets:
Shares
- The S&P 500 rose 1.2% at 4 p.m. PT
- The Nasdaq 100 rose 1.1%
- The Dow Jones Industrial Average rose 1.3%
- The MSCI World index rose 1.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro rose 0.1% to reach US$0.9873
- The British pound fell 0.2% to settle at US$1.1279
- The Japanese yen fell 0.9% to 148.98 per dollar
Cryptocurrencies
- Bitcoin fell 0.8% to US$19,341.76
- Ether rose 1.1% to US$1,344.95
Obligations
- The yield on 10-year Treasury bills rose three basis points to 4.25%
- Germany’s 10-year yield fell nine basis points to 2.33%
- The UK 10-year yield fell 31 basis points to 3.75%
Goods
- West Texas Intermediate crude fell 0.5% to US$84.66 a barrel
- Gold futures fell 0.1% to US$1,654.20 an ounce
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