US stocks resumed a rally as investors weighed bets the Federal Reserve is approaching the end of its interest-rate hikes against evidence pointing to a slowdown in China’s economy.
The S&P 500 gained 0.3% and the tech-heavy Nasdaq 100 rose 0.6%, adding to last week’s gains amid optimism the Fed may soon be able to claim victory over inflation.
Activision Blizzard Inc. rose after Microsoft Corp. and British regulators held “productive” talks needed to clear the companies’ $69 billion tieup. Ford Motor Co. fell after cutting the price on the electric version of its F-150 truck. The dollar fluctuated, and equities in Europe and mainland China declined after gross domestic product in China grew at a slower-than-expected pace in the second quarter, increasing risks likely to hit the global economy.
“Many countries do depend on strong Chinese growth to promote growth in their own economies, particularly countries in Asia, and slow growth in China can have some negative spillovers for the United States,” Treasury Secretary Janet Yellen said in a Bloomberg Television interview on Monday. “Growth has slowed, but our labor market continues to be quite strong. I don’t expect a recession.”
For a time, analysts believed Chinese shoppers coming out of Covid lockdowns would be able to carry the global economy — despite rising US and European interest rates. However, that narrative is looking increasingly shaky.
Yellen said she sees the US on a “good path” to bringing down inflation without a major weakening in the labor market.
Last week stocks and bonds rallied after data showed a slowdown in the rate of inflation.
“The US inflation data announced last week has fueled hopes that we have reached a turning point in the inflation cycle and reinforced expectations for a ‘disinflationary soft landing,’” Joe Little, chief strategist at HSBC Asset Management, wrote in a note. “Bonds have rallied back after last week’s barrage of hawkish Fed rhetoric and stocks have hit 12-month highs. A big question in investment markets currently is: can this ‘Goldilocks’ situation of not-too-hot and not-too-cold data continue?”
The next pressure point for markets will be earnings, with hundreds of companies reporting over the next few weeks. S&P 500 firms are expected to post a 9% drop in profits in the second quarter, making it the worst season since 2020, according to data compiled by Bloomberg Intelligence. In Europe, it may be even worse, with a projected 12% slump.
“Running bulls could be tripped up by cracks in the economy and corporate earnings,” Saira Malik, chief investment office of Nuveen, said. “Looking at S&P 500 corporate earnings as a gauge, analyst estimates continue to be revised lower for both the second quarter of 2023 and the full year.”
In commodities, crude futures dropped as traders weighed disappointing Chinese data and restarting Libyan supplies against signs of a tightening market. Wheat futures jumped after Russia terminated a grain-export deal, jeopardizing a key trade route from Ukraine, one of the world’s top grain and vegetable oil shippers. And gold was little changed.
Key events this week:
- G-20 finance ministers and central bankers are meeting in India, Monday
- US retail sales, industrial production, business inventories, cross-border investment, Tuesday
- Eurozone, UK CPI, Wednesday
- US housing starts, Wednesday
- China loan prime rates, Thursday
- US initial jobless claims, existing home sales, Conf. Board leading index, Thursday
- Japan CPI, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.3% as of 1:12 p.m. New York time
- The Nasdaq 100 rose 0.6%
- The Dow Jones Industrial Average rose 0.2%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.1235
- The British pound fell 0.1% to $1.3075
- The Japanese yen was little changed at 138.81 per dollar
Cryptocurrencies
- Bitcoin fell 0.7% to $30,069.07
- Ether fell 1.4% to $1,901.67
Bonds
- The yield on 10-year Treasuries declined two basis points to 3.81%
- Germany’s 10-year yield declined three basis points to 2.48%
- Britain’s 10-year yield declined one basis point to 4.43%
Commodities
- West Texas Intermediate crude fell 1.6% to $74.21 a barrel
- Gold futures fell 0.4% to $1,957.30 an ounce
