(Bloomberg) — A renewed wave of dip buying spurred a rebound in stocks after a selloff triggered by economic concerns, with traders now looking to this week’s inflation data for clues on the size of Federal Reserve rate cuts.
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All major groups in the S&P 500 advanced, with the benchmark up over 1%. About 90% of its shares climbed. That’s after the gauge’s worst start to a September on record, according to Bespoke Investment Group data going back to 1953. Tesla Inc. and Nvidia Corp. led gains in megacaps, though Apple Inc. fluctuated — with all eyes on Monday’s product-launch event. Wall Street’s favorite volatility gauge — the VIX — tumbled below 20.
“We’re seeing mostly technical dip-buying,” said Tom Essaye at The Sevens Report. “Economic growth is undoubtedly and clearly losing momentum, but a soft landing remains more likely than a hard landing. This week focus turns back to inflation.”
Treasuries saw mild moves, with traders paring the chance of a half-point rate reduction at the Fed’s September meeting to 20% from as high as 50% last week. US inflation expectations stabilized while delinquency concerns grew, according to a Fed Bank of New York survey released Monday.
The S&P 500 climbed to 5,480. The Nasdaq 100 gained 1.4%. The Dow Jones Industrial Average added 1.4%. The Russell 2000 of small caps rose 1%. Boeing Co. rallied on optimism that a labor deal will avert a strike. Alphabet Inc.’s Google heads back to court to face US Justice Department allegations it manipulates the display advertising market. Oracle Corp. is due to report results later Monday.
Treasury 10-year yields fell two basis points to 3.69%. The dollar gained. Bitcoin topped $56,000.
“Equity investors are walking a sentiment tightrope between Fed rate cut cheer, recession fears, and a political wonderland,” said Craig Johnson at Piper Sandler. “Looking at popular averages through a technical analysis lens suggests last week’s weakness was just a pullback within the context of a longer-term uptrend.”
US stocks could remain choppy and see further declines in the near term amid risks around seasonality, sentiment and the presidential election, according to RBC Capital Markets strategists.
“Any further damage would be contained within a 10%” pullback range, the team led by Lori Calvasina wrote in a note. They warn that if hard landing fears escalate, the risk of a growth scare decline in the 14%-20% range “will also admittedly rise.”
With labor market data signaling a cooling rather than an imminent recession, HSBC strategists led by Max Kettner said they were adding to their overweight position on US stocks based on a resilient third-quarter earnings outlook.
Higher volatility over the short, medium and long term will make utilities and other quality and income stocks more attractive relative to growth peers, Bank of America Corp. equity and quant strategist Savita Subramanian said Monday.
“Prefer the tortoise (quality & income) to the hare (growth & re-rating),” she wrote in a note to clients, adding that utility returns have matched those of the Nasdaq “over the long term.” Utilities are also beating tech stocks this year, Subramanian said.
Last week’s selloff in US equities has left major indexes susceptible to further declines, according to strategists at Citigroup Inc.
Large unwinds of long positions in the S&P 500 short positions indicate risk appetite turning toward more “directly bearish tilt,” the team led by Chris Montagu said. De-grossing, or closure of long and short positions by hedge funds, in the gauge is leaving gross exposure at half of its peak in mid-July, the strategists noted.
Hedge funds continued to unwind their positions in US stocks as the S&P 500 suffered its biggest weekly decline since March 2023.
Global equities were net sold for the eighth straight week led by North America, according to Goldman Sachs Group Inc.’s prime brokerage desk report for the week ended on Sept. 6. The move is a continuation of a trend that, broadly speaking, started in May as funds began a big unwind of their positions in order to get more cash readily on hand for possible dislocations around the US presidential election.
“Slowdowns do not necessarily portend recessions, nor are stock market corrections necessarily the harbinger of bear markets,” said Konstantinos Venetis at TS Lombard. “But the mix of rising macro (growth) and political (US election) uncertainty increasingly puts the burden of proof on the bulls in the near term.”
Venetis says that while the Fed is poised to ease, the question is whether “insurance” cuts prove too little too late.
“The risk is that ‘growth scare’ dynamics assume a life of their own and raise the pressure further on an equity market that already looks vulnerable from a technical standpoint, he noted.
To Mark Haefele at UBS Global Wealth Management, despite bouts of equity weakness the fundamentals for stocks remain positive.
“We expect S&P 500 companies to grow earnings by 11% this year and 8% in 2025, he said. “And historically, in the absence of a US recession, the index has gained 17% on average in the 12 months following the first Fed rate cut of a cycle.”
History suggests that the Fed’s success in piloting a soft versus hard landing will play a key role in dictating the path for US equities, according to Seema Shah at Principal Asset Management.
For example, in 1985 and 1995, she says rate cuts supported strong equity gains as recessions were avoided. Meantime, in 2001 and 2007, even aggressive easing couldn’t prevent steep market declines amid economic downturns.
“Today, the markets remain cautiously optimistic, reflecting hopes that rate cuts will avoid a downturn,” Shah said. “Yet, if economic conditions worsen sharply, fears of a recession could outweigh the benefits of rate cuts. History shows that rate cuts themselves are not the enemy — it’s the economic context in which they occur that investors should be paying close attention to.”
On Wednesday, a government report is expected to show the consumer price index rose 2.6% in August from a year earlier, according to the median forecast of economists surveyed by Bloomberg. That would be the smallest increase since 2021. There will be little new guidance from Fed officials, who are in the traditional blackout period ahead of the Sept. 17-18 meeting.
“Inflation matters,” said Chris Low at FHN Financial. “Weaker numbers might encourage the Fed toward a 50 basis-point cut, while anything higher could lock in 25 basis points. As it is, though, even if inflation is benign and some participants push for a bigger cut, we expect the Fed to land on a quarter point for a first step, with an option to cut faster at later meetings if the data support moving faster.”
Corporate Highlights:
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Discount retailer Big Lots Inc. has filed for bankruptcy protection and plans to sell the firm’s assets and ongoing business in a court-supervised process.
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PayPal Holdings Inc. added Shopify Inc. to its list of recent partnerships, reaching a deal to process some of the payment company’s debit- and credit-card transactions.
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B. Riley Financial Inc., the embattled broker-dealer and investment firm, outlined preliminary plans to sell assets and round up financing to cope with its debt burden and shore up its balance sheet.
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Starboard Value LP is pushing News Corp. to eliminate its dual-class share structure and is prepared to take further action against the media company if it refuses to engage.
Key events this week:
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China trade, Tuesday
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Germany CPI, Tuesday
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US presidential debate between Donald Trump and Kamala Harris, Tuesday
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US CPI, Wednesday
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Japan PPI, Thursday
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ECB rate decision, Thursday
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US initial jobless claims, PPI, Thursday
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Eurozone industrial production, Friday
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Japan industrial production, Friday
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U. Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 rose 1.3% as of 1:22 p.m. New York time
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The Nasdaq 100 rose 1.4%
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The Dow Jones Industrial Average rose 1.4%
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The MSCI World Index rose 0.9%
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Bloomberg Magnificent 7 Total Return Index rose 1.6%
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The Russell 2000 Index rose 1%
Currencies
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The Bloomberg Dollar Spot Index rose 0.1%
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The euro fell 0.3% to $1.1053
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The British pound fell 0.2% to $1.3099
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The Japanese yen fell 0.3% to 142.77 per dollar
Cryptocurrencies
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Bitcoin rose 3.8% to $56,470.75
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Ether rose 2.7% to $2,338.8
Bonds
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The yield on 10-year Treasuries declined two basis points to 3.69%
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Germany’s 10-year yield was little changed at 2.17%
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Britain’s 10-year yield declined three basis points to 3.86%
Commodities
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West Texas Intermediate crude rose 1.3% to $68.56 a barrel
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Spot gold rose 0.2% to $2,502.99 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Vildana Hajric.
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