Market Rally: S&P 500 Hits New Highs Amid Mixed Economic Signals
The S&P 500 Index ($SPX) (SPY) closed up by +0.77% on Monday, while the Dow Jones Industrials Index ($DOWI) (DIA) increased by +0.47%, and the Nasdaq 100 Index ($IUXX) (QQQ) rose by +0.82%.
Stock Performance and Economic Optimism
On Monday, stocks showed strong performance. The S&P 500 and the Dow Jones reached all-time highs, with the Nasdaq 100 hitting a 2-3/4 month peak. This rally followed a positive reaction to corporate earnings reports from JPMorgan Chase and Wells Fargo, which led bank stocks higher last Friday. The semiconductor sector also contributed to the market’s rise. However, declines in Boeing and Caterpillar moderated the Dow’s gains. Notably, trading volumes were lower than usual, partly due to the Columbus Day holiday, which closed cash Treasury market operations.
Federal Reserve Signals and Global Trade Concerns
Comments from Federal Reserve officials hinted at a cautious approach to interest rate cuts. Minneapolis Fed President Neel Kashkari suggested that “further modest reductions” in the federal funds rate might be forthcoming in the coming months. Additionally, Fed Governor Christopher Waller indicated that the recent economic data shows the U.S. economy may be performing better than expected, allowing for less urgency regarding rate cuts compared to last month’s meetings.
Trade data from China raised concerns about global economic growth. In September, China’s exports increased by +2.4% year-over-year, falling short of the +6.0% forecast, while imports only grew by +0.3%, lower than the anticipated +0.8%. Meanwhile, the Consumer Price Index (CPI) rose by +0.4% year-over-year, also missing the expected +0.6%, and the Producer Price Index (PPI) declined by -2.8%, deeper than the forecast of -2.6%. This marked the 24th consecutive month of falling producer prices in China.
Geopolitical Tensions and Corporate Earnings Outlook
Continued tensions in the Middle East pose risks for the stock market. In addition to ongoing conflicts in Gaza, Israel is conducting military operations in southern Lebanon against Hezbollah, heightening uncertainty. Investors are also monitoring Israel’s next moves following missile attacks from Iran.
The upcoming Q3 earnings reports could play a vital role in shaping stock market trends. Bloomberg Intelligence predicts S&P 500 companies will report an average earnings growth of +4.3% for the third quarter, down from +7.9% expected in July.
Market Expectations for Rate Cuts
Traders are currently pricing in an 87% chance of a -25 basis point rate cut at the Federal Open Market Committee (FOMC) meeting on November 6-7, with no expectations for a -50 basis point cut at that meeting.
Global Stock Market Movement
International markets also saw positive movements on Monday. The Euro Stoxx 50 climbed to a two-week high, closing up +0.74%. The Shanghai Composite in China finished up +2.07%, while Japan’s Nikkei Stock 225 was closed for the Health Sports Day holiday.
Interest Rates and Government Bonds
December 10-year T-notes (ZNZ24) dropped by -12.5 ticks on Monday. With no trading in the cash Treasury market due to the holiday, T-notes faced pressure from declines in European government bonds and a rise in stock prices, which lowered demand for safe-haven assets. Hawkish comments from Federal Reserve officials contributed to unfavorable conditions for T-notes, reinforcing the notion of gradual interest rate cuts.
European government bond yields rose on Monday. The yield on the 10-year German bund increased by +0.9 basis points to 2.275%. The 10-year UK gilt yield reached a 3-1/4 month high of 4.259%, finishing up +3.0 basis points at 4.238%. Market swaps indicate a 96% probability for a -25 basis point rate cut by the European Central Bank at its upcoming meeting.
Stock Movers of Note
Monday’s chip sector rally significantly boosted the market. ARM Holdings Plc (ARM) surged over +6%, leading the Nasdaq 100, while Marvell Technology (MRVL) gained more than +5%. Applied Materials (AMAT) and Qualcomm (QCOM) both rose over +4%, with several other semiconductor stocks, including Lam Research (LRCX) and ASML Holding NV (ASML), also increasing over +3%.
In the Dow Jones, Apple (AAPL) increased by over +1% after Evercore ISI upgraded its rating to outperform, setting a target price of $250. Longboard Pharmaceuticals (LBPH) soared more than +52% following its acquisition by H. Lundbeck A/S for $2.6 billion.
Vistra Corp (VST) closed up over +5% after BNP Paribas Exane initiated coverage with an outperform rating and a price target of $231. Similarly, PG&E Corp (PCG) rose more than +3% after Jefferies set a buy rating and a target price of $24.
Regal Rexnord (RRX) gained over +3% after Citigroup recommended a buy rating with a price target of $200. SentinelOne (S) rose more than +2% post-upgrade by Piper Sandler, which raised its price target to $32.
On the downside, Caterpillar (CAT) fell more than -2% after Morgan Stanley downgraded its rating to underweight with a price target of $332. Boeing (BA) also dropped more than -1% due to workforce reductions and significant charges announced for its commercial and defense segments. Walgreens Boots Alliance (WBA) closed down more than -2% after Mizuho Securities lowered its price target from $15 to $10.
Energy stocks struggled as WTI crude oil prices fell over -2%, resulting in declines for companies like Diamondback Energy (FANG), APA Corp (APA), and Marathon Petroleum (MPC), which all closed down over -1%. VF Corp (VFC) dropped more than -4% following a downgrade to underweight by Wells Fargo Securities. Additionally, Amgen (AMGN) fell nearly -1% after being downgraded by Truist Securities.
Upcoming Earnings Reports
Investors will be watching closely as several major companies are scheduled to report earnings on October 15, 2024, including Bank of America Corp (BAC), Charles Schwab Corp/The (SCHW), Citigroup Inc (C), Goldman Sachs Group Inc/The (GS), UnitedHealth Group Inc (UNH), and Walgreens Boots Alliance Inc (WBA).
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
