Stocks seesawed as Treasuries jumped, with traders anxiously awaiting inflation data later this week for clues on the pace of Federal Reserve rate hikes.
The S&P 500 fluctuated after a rally of as much as 1% as a gloomy forecast from giant chipmaker Nvidia Corp. weighed on technology shares. Tesla Inc. joined gains in electric-vehicle firms after the US Senate passed a key tax, climate and health-care bill. Bed Bath & Beyond Inc. led shares of meme shares and others favored by individual investors higher as the home-goods retailer gained for a ninth straight session.
Friday’s strong job data added to the case for more Fed monetary tightening, and traders are looking to inflation numbers due this week for clues on the policy path. Rate-hike expectations have pushed up Treasury yields and the dollar, while a key part of the US bond curve is close to the most inverted level since 2000, suggesting investors foresee a recession as the Fed applies the brakes on the economy.
US jobs beat forecasts by “enough to re-ignite the inflation debate and renew focus on US CPI prints,” said Peter McCallum, a strategist at Mizuho International Plc in London. “Indeed, a very unexpected move lower in US CPI is needed for the market to stop thinking about the Fed having to do more. And with more tightening, the probability of a hard landing rises.”
A better-than-feared second-quarter earnings season sparked a rally in stocks last month as investors bet that margins could withstand inflationary pressure. Optimism around a dovish tilt in Fed policy amid weaker economic data has also lifted sentiment.
But strategists at Morgan Stanley and Goldman Sachs Group Inc. expect corporate profit margins to contract next year given unrelenting cost pressures, an outlook that is at odds with the mood in equity markets. According to Morgan Stanley’s Michael J. Wilson, among the most vocal bears on US stocks, “the best part of the rally is over.”
US inflation data this week could inject more market swings. While price pressures may be topping out, it’s unclear if they will persist at stubbornly high levels. The latest comments from Fed officials left a question mark over wagers on a policy pivot toward reducing borrowing costs next year.
What to watch this week:
- US CPI data, Wednesday
- China CPI, PPI Wednesday
- Chicago Fed President Charles Evans, Minneapolis Fed President 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 was little changed as of 12:48 p.m. New York time
- The Nasdaq 100 fell 0.2%
- The Dow Jones Industrial Average was little changed
- The MSCI World index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.1% to $1.0198
- The British pound was little changed at $1.2079
- The Japanese yen rose 0.3% to 134.64 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 0.9% to $89.77 a barrel
- Gold futures rose 0.7% to $1,804.30 an ounce
