(Bloomberg) — Stocks rose ahead of major central bank decisions, key economic data and earnings reports from four giant companies with a market capitalization of roughly $10 trillion.
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Big tech stocks rose after a rotation that brought the Nasdaq 100 to the brink of a correction, while small caps fell after rising 10% in July. After a disappointing start to big-cap earnings season, results from Microsoft Corp., Meta Platforms Inc., Apple Inc. and Amazon.com Inc. will be key. Federal Reserve officials are on the verge of cutting interest rates within months, and Chairman Jerome Powell could signal that move on Wednesday.
“Fed and tech earnings will be in focus this week,” said Paul Nolte of Murphy & Sylvest Wealth Management. “The direction of interest rates going forward should become clearer after the press conference, and big tech will be able to answer whether investor expectations of still-high growth rates are justified.”
The S&P 500 was trading near 5,480. Bloomberg’s “Magnificent Seven” index of large stocks rose 1.6%. The Russell 2000, an index of mid-cap companies, fell 0.9%. Tesla rose on a bullish forecast from Morgan Stanley. McDonald’s investors were not worried about the burger chain’s sales, even as executives promised to launch a new promotional campaign.
Government bonds edged up and are on track for a third straight month of gains, their longest streak since 2021, as corporate borrowers rush to raise capital ahead of the start of a series of central bank meetings.
U.S. policymakers are widely expected to keep interest rates on hold on Wednesday after a year of keeping them at their highest in more than two decades. But investors expect officials to signal a change in policy in September amid growing risks that could jeopardize a strong but weakening jobs market. Interest rate decisions in Japan and the U.K. will also be closely watched, with Japan likely to raise rates and Britain likely to cut.
“While it’s nearly impossible to know if the worst of the recent market sell-off is over, we believe the backdrop for equity markets remains favorable due to solid growth, declining inflation, a potential Fed rate cut and spending on AI,” said David Lefkowitz of UBS Global Wealth Management.
Whether the Fed cuts interest rates in September or not, the foundation seems to be laying for a broad-based rally in stocks in anticipation of it, according to John Stoltzfus of Oppenheimer Asset Management.
“The dominance of a few tech stocks so far this year is not the result of the California Dream or irrational exuberance, but rather is reminiscent of the old adage that once unleashed, the tech genie never goes back into the bottle. Rather, it is a reflection of new developments and trends,” he said.
S&P 500 companies that beat Wall Street estimates on sales and profits outperformed the U.S. stock index by 2.4 percentage points the next day, the biggest gain since the fourth quarter of 2018, according to Bank of America’s Savita Subramanian. Meanwhile, investors have become less critical of companies that miss profit expectations.
“This suggests that the recent themes that have provided surprises may become less crowded as non-AI themes emerge,” the strategists wrote.
Morgan Stanley’s Michael Wilson said a darkening outlook for U.S. corporate earnings would likely hurt economy-linked stocks as investors worry about the impact of lower inflation on pricing power.
One of the strategists who was most bearish on U.S. stocks last year said a measure of upward and downward earnings revisions has weakened, as is typical for this time of year, and that this is being driven primarily by so-called cyclical sectors.
Lori Calvasina, a strategist at RBC Capital Markets, also said the trend in earnings revisions doesn’t yet support further market-driven turnover.
After a vibrant first half of 2024, traders should temper their optimism about stock market gains over the coming months, based on SentimentRadar’s indicators, which showed a weakening performance the last time it reached similar levels.
Most of the major indexes tracked by the firm have been in “risk-on” mode for 182 consecutive days, approaching levels last seen during the meme-stock boom of 2021 (223 days). There have only been three longer streaks since the investment research firm began calculating the index in 2000. After such episodes, the S&P 500 has risen just 44% over the following months, according to the firm’s analysis, and short-term gains typically backfire in the long term.
Company Highlights:
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Shares of chipmaker ON Semiconductor Inc. rose after the company reported better-than-expected second-quarter results.
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Apple’s next artificial intelligence features arrived later than expected and weren’t included in the initial release of its iPhone and iPad software overhaul, but it gave the company time to fix bugs.
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Reckitt Benckiser Group Inc. shares plummeted to an 11-year low on Monday after a ruling against Abbott Laboratories intensified concerns over the infant formula lawsuits the two companies face.
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Alibaba Group Holding has announced plans to capture more service fees from retailers.
Major events this week:
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Eurozone economic confidence, GDP, consumer confidence on Tuesday
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US JOLTS Jobs, Consumer Confidence, Tuesday
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Microsoft earnings on Tuesday
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Eurozone Consumer Price Index, Wednesday
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Bank of Japan policy decision Wednesday
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US ADP Payroll Change, Wednesday
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Wednesday’s Fed interest rate decision
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Metaplatform Earnings Wednesday
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Eurozone S&P Global Eurozone Manufacturing PMI, Unemployment Rate, Thursday
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US Initial Jobless Claims, ISM Manufacturing, Thursday
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Amazon, Apple earnings Thursday
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Bank of England interest rate decision Thursday
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U.S. jobs, factory orders on Friday
Some of the key market developments:
stock
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The S&P 500 was up 0.4% as of 12:39 p.m. New York time.
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The Nasdaq 100 rose 0.8%.
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The Dow Jones Industrial Average was little changed
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The MSCI World Index rose 0.3%.
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The Bloomberg Magnificent 7 Total Return Index rose 1.6%.
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The Russell 2000 Index fell 0.9%.
currency
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The Bloomberg Dollar Spot Index rose 0.3%.
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The euro fell 0.3% to $1.0820.
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The British pound fell 0.1% to $1.2854.
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The Japanese yen weakened 0.1% to 153.98 yen to the dollar.
Cryptocurrency
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Bitcoin fell 1.2% to $67,175.29.
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Ether rose 0.5% to $3,275.21.
Bonds
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The yield on the 10-year Treasury note fell 2 basis points to 4.17%.
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German 10-year government bond yields fell 5 basis points to 2.36%.
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UK 10-year government bond yields fell 5 basis points to 4.05%.
merchandise
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West Texas Intermediate crude fell 2.3% to $75.42 a barrel.
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Spot gold fell 0.4% to $2,377.33 an ounce.
This story was produced with assistance from Bloomberg Automation.
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