The stock market welcomed the latest data underscoring economic resilience even if that means the potential for still tight Federal Reserve policy.
(Bloomberg) — The stock market welcomed the latest data underscoring economic resilience even if that means the potential for still tight Federal Reserve policy.
The S&P 500 climbed 1%, with Tesla Inc. rallying after a 6% plunge. Snowflake Inc. jumped 5% on an artificial intelligence-related partnership with Nvidia Corp. — which halted a four-day drop. Facebook’s parent Meta Platforms Inc. gained as Citigroup Inc. lifted its target, while Alphabet Inc. underperformed with an analyst saying Google’s owner was moving “too fast” in AI.
For the first time since early 2022, the consumer confidence report showed that a larger percentage of people expected higher stock prices relative to lower equity values, according to Bespoke Investment Group. While the return of bullish sentiment could be a contrarian indication of a negative reversal, the research firm says that hasn’t be the case historically.
Since 1987, there have only been three other periods where net bullish sentiment from consumers was negative for at least nine months, Bespoke said. In the year after two of those negative streaks, the S&P 500 rallied 10.9% and 19.0%, respectively, and after a record 18-month run, the equity gauge climbed even more.
“Growth has held up well thus far,” said Mark Dowding, chief investment officer at BlueBay Asset Management. “With central banks nearing the end of their rate hiking cycles, this has fed hopes of a relatively soft landing in economic terms, without a more severe recession.”
For Kara Murphy at Kestra Investment Management, it’s also important to consider that while consumers are continuing to spend, a lot of that confidence is driven by strength in the labor market.
“Are there inflationary expectations still built into the labor market that the Fed really needs to worry about?” Murphy added.
Treasuries declined as the strong data fueled speculation that the Fed will resume raising interest rates after this month’s pause.
Fed’s Stress Test
In the run-up to the results of the Fed’s stress test, a $2.9 billion exchange-traded fund tracking regional lenders is up over 2%.
Analysts largely expect banks to sail through the tests even as regulators explore more stringent requirements in the aftermath of a few collapses in the financial industry. Several bank executives have recently been trying to temper shareholder expectations regarding dividend increases and stock buybacks — which had been the focus of investors in previous years.
Tuesday’s rebound in stocks extended the S&P 500’s rally in June, with the gauge heading toward its fourth consecutive month of gains — the longest winning streak since August 2021.
The equity market made a pivotal shift this month, exiting a phase typically associated with the worst return prospects and powering into a stage that’s tied to a more favorable outlook.
Market Model
A Bloomberg Intelligence model known as the Market Regime Index — which clusters periods into three phases dubbed accelerated growth (green), moderate growth (yellow) and decline (red) — has flipped out of the cautious red zone that it’s been stuck in for 15 straight months and into yellow. That signals brighter times ahead for stocks, according to BI’s Gina Martin Adams and Gillian Wolff.
In other corporate news, American Equity Investment Life Holding Co. surged to a record on a $4.3 billion Brookfield bid. Carnival Corp. rallied as several analysts increased their targets for the cruise line operator. Delta Air Lines Inc. rose after boosting its earnings expectations.
Meanwhile, Walgreens Boots Alliance Inc. sank after the drugstore chain slashed its profit forecast, while Lordstown Motors Corp. plummeted after the electric-vehicle maker filed for bankruptcy.
Key events this week:
- US wholesale inventories, goods trade balance, Wednesday
- Fed to unveil results of annual banking industry stress test, Wednesday
- Policy panel with ECB’s Christine Lagarde, Fed Chair Jerome Powell, BOJ’s Kazuo Ueda and BOE’s Andrew Bailey speak, Wednesday
- Eurozone economic confidence, consumer confidence, Thursday
- US GDP, initial jobless claims, Thursday
- Atlanta Fed President Rafael Bostic speaks, Thursday
- China manufacturing PMI, non-manufacturing PMI, balance of payments, Friday
- US personal income and spending, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 1.1% as of 2:01 p.m. New York time
- The Nasdaq 100 rose 1.8%
- The Dow Jones Industrial Average rose 0.7%
- The MSCI World index rose 0.9%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.5% to $1.0961
- The British pound rose 0.3% to $1.2749
- The Japanese yen fell 0.3% to 143.97 per dollar
Cryptocurrencies
- Bitcoin rose 1.8% to $30,716.88
- Ether rose 2.6% to $1,900.17
Bonds
- The yield on 10-year Treasuries advanced four basis points to 3.76%
- Germany’s 10-year yield advanced five basis points to 2.36%
- Britain’s 10-year yield advanced seven basis points to 4.38%
Commodities
- West Texas Intermediate crude fell 1.9% to $68.08 a barrel
- Gold futures fell 0.6% to $1,921.40 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott, Tassia Sipahutar, Sujata Rao, Carly Wanna, Emily Graffeo and Isabelle Lee.
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