Stocks rose as bond yields pared their recent surge and investors looked beyond prospects for aggressive Federal Reserve rate hikes. The dollar fell.
Traders shrugged off a weak revenue forecast from giant chipmaker Nvidia Corp., with the tech-heavy Nasdaq 100 up 20 percent from its June 16 low. Tesla Inc. joined a rally 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.”
Crude oil slipped amid concerns over the potential hit to demand from an economic slowdown, while gold rose. Bitcoin pushed above US$24,000, spearheading a rally in crypto tokens as investors turned to digital assets in the wake of the robust US jobs data.
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 towards 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 rose 0.7 percent as of 10:29 am New York time
- The Nasdaq 100 rose 0.9 percent
- The Dow Jones Industrial Average rose 0.7 percent
- The Stoxx Europe 600 rose 1.1 percent
- The MSCI World index rose 0.8 percent
Currencies
- The Bloomberg Dollar Spot Index fell 0.4 percent
- The euro rose 0.2 percent to US$1.0208
- The British pound rose 0.5 percent to US$1.2128
- The Japanese yen rose 0.4 percent to 134.49 per dollar
Bonds
- The yield on 10-year Treasuries declined six basis points to 2.77 percent
- Germany’s 10-year yield declined seven basis points to 0.88 percent
- Britain’s 10-year yield declined 11 basis points to 1.94 percent
Commodities
- West Texas Intermediate crude fell 0.5 percent to US$88.56 a barrel
- Gold futures rose 0.6 percent to US$1,801.90 an ounce