Stocks joined bonds higher as traders weighed the prospects for a Federal Reserve rate cut after Jerome Powell cited signals the U.S. is back on a disinflationary path.
Wall Street shrugged off data showing an unexpected rise in job openings, interrupting a months-long downward trend that highlighted a gradual slowdown in labor demand, seen as key to easing monetary policy. Powell said there had been a “substantial” shift toward a better balance in the labor market between the supply and demand for workers. He described the labor market as strong, but said it was slowing appropriately.
“Powell’s comments were more about the direction of yields, as the chair noted that there has been “a lot of progress” on the inflation front in the U.S.,” said Ian Lyngen of BMO Capital Markets. “Additionally, risks are characterized as more balanced, rather than skewed toward the inflationary side of the Fed’s dual mandate.”
The S&P 500 index hovered around 5,480 points. Tesla Inc. led the gain among mega-caps, rising nearly 10% after its deliveries beat expectations. The yield on the 10-year Treasury note fell two basis points to 4.44%.
The S&P 500 index will hit new highs by year-end as economic strength outweighs market risks, according to RBC Capital Markets strategist Lori Calvasina.
She raised her year-end target to 5,700 from 5,300, one of the highest in the market. That implies a gain of about 4% from the most recent close. Still, Calvasina highlighted the risks and called her target increase a “nervous upside.” The market has “gotten a little ahead of itself” in terms of valuations and some sentiment indicators.
Deutsche Bank AG strategists expect U.S. corporate profits to rise an above-average 13% in the second quarter, led by growth in mega-cap and technology stocks. The forecast is for a sixth straight quarter of above-average results. However, the team led by Binky Chadha expects the market reaction to be muted as stocks have rebounded heading into the season.
The record rally in U.S. stocks, driven largely by U.S. tech giants, is once again drawing comparisons with previous Wall Street booms and busts. But the parallels with the dot-com era and stock market frenzies of the past are so far exaggerated, if history is any guide.
While the S&P 500 is up 85% since 2019, despite some declines during the period, the great bull runs of the 20th century dwarf that return. The benchmark U.S. stock index climbed 220% in the last five years of the dot-com bubble at the turn of the century, and 238% during the same period of the Roaring Twenties, according to Bloomberg Intelligence data.
Bank of America Corp. clients rushed out of U.S. stocks for a second straight week, with outflows driven by hedge funds and institutional and retail investors being net buyers.
Clients sold $3.1 billion of U.S. stocks in the five-day period ended June 28, said quantitative strategists led by Jill Carey Hall.
Company Highlights:
- Lennar Corp. and DR Horton Inc. were downgraded by Citigroup Inc. analyst Anthony Pettinari, citing concerns that the housing market will remain “slow” in the second half of the year.
- Novo Nordisk A/S and Eli Lilly & Co. fell after U.S. President Joe Biden demanded price cuts on their blockbuster weight-loss and diabetes drugs.
- Robinhood Markets Inc. plans to offer cryptocurrency futures in the U.S. and Europe in the coming months, according to people familiar with the commission-free trading and investing platform’s plans.
- Moderna Inc. has secured nearly $200 million from the U.S. government to accelerate development of an mRNA vaccine against pandemic influenza as a dangerous strain of bird flu spreads through dairy farms across the country, fueling concerns about a burgeoning health crisis.
- Northern Data AG is talking to potential advisers about a U.S. IPO of its combined cloud computing and artificial intelligence data center businesses, according to people familiar with the matter.
- BYD Co. will work with French auto leasing company Ayvens SA to expand its presence in Europe, in a deal that gives the Chinese electric carmaker greater access to the region’s lucrative corporate market.
Main events of the week:
- Caixin China Services PMI, Wednesday
- S&P Global PMI and Eurozone Services PPI, Wednesday
- US Fed Minutes, ADP Employment, ISM Services, Factory Orders, Initial Jobless Claims, Durable Goods, Wednesday
- Fed Chairman John Williams Speaks Wednesday
- UK General Election, Thursday
- United States Independence Day holiday, Thursday
- Eurozone retail sales, Friday
- US jobs report, Friday
- Fed Chairman John Williams Speaks Friday
Some of the main movements in the markets:
Actions
- The S&P 500 was up 0.1% as of 11:45 a.m. New York time.
- The Nasdaq 100 rose 0.4%
- The Dow Jones Industrial Average was little changed
- The Stoxx Europe 600 fell by 0.4%.
- The MSCI World Index rose 0.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0735.
- The pound rose 0.2% to $1.2678
- The Japanese yen was little changed at 161.52 per dollar.
Cryptocurrencies
- Bitcoin fell 2.1% to $61,909.01
- Ether fell 1.5% to $3,412.45
Obligations
- The yield on 10-year Treasury notes fell two basis points to 4.44%
- Germany’s 10-year yield was little changed at 2.60%.
- The UK 10-year yield fell three basis points to 4.25%
Raw materials
- West Texas Intermediate crude oil little changed
- Spot gold fell 0.3% to $2,325.55 an ounce
