Wall Street’s main indexes rose on Monday ahead of key inflation and jobs data this week that will offer more clues on the Federal Reserve’s interest rate path, while a pullback in Treasury yields cushioned some megacap growth stocks.
Stocks ended a volatile session higher on Friday after Fed Chair Jerome Powell at the Jackson Hole meet said the U.S. central bank may need to raise interest rates further.
Focus now shifts to a report on the personal consumption expenditures price index, the Fed’s preferred inflation gauge, which is set to be released on Thursday and the non-farm payrolls data due on Friday.
“There’s some risk core inflation on a year-over-year basis is still at a level that’s untenable for members of the Fed ... there are some upside risks in terms of rates going into the September meeting,” said Roosevelt Bowman, senior investment strategist at Bernstein Private Wealth Management.
Traders’ bets of a pause in tightening by the Fed next month were unchanged, while bets of at least a 25-basis point interest rate hike in November rose to nearly 50% from 38% a week earlier, according to CME Group’s FedWatch tool.
As a result, the euro/dollar exchange rate fell to its lowest level in more than two months on Friday – 4.5% below July’s peak, as US long-term bond yields began their upward march through August again .
The dollar index rose to its highest since June 7 against most-traded currencies (.DXY), while sterling also retreated sharply to June levels as UK economic clouds gathered.
The dollar’s jump ahead of the Jackson Hole set-piece was a modest change in Fed futures pricing, which now indicates a more than 50% chance of a Fed rate hike to 5.5-5.75% next month.
While there hasn’t been a major change in pricing, the changing constraints put the onus on Powell to return to the market if he really wants to signal that the Fed is done with its rate hike campaign.
Some of his aides indicated on Thursday that the central bank has indeed done enough to tighten the policy rate – and may continue to drive inflation down by keeping rates high longer. This allows it to reduce the traditional lag in credit tightening while keeping the long-term bond markets under its control.
Philadelphia Fed President Patrick Harker and Boston Fed President Susan Collins tentatively welcomed the recent jump in bond market yields, which complement the Fed’s work to bring inflation back to the 2% target and prevent another hike Can do.
Collins said, “We may be close, we may even be at a place where we will stop.”
Tech-related stocks were mixed by afternoon trade after kicking off the session on a strong note, with the yield on the U.S. 10-year Treasury note easing to 4.21%.
Alphabet and Meta Platforms inched 0.3% and 0.4% higher, while Amazon and Nvidia slipped 0.9% and 0.7%, respectively.
3M jumped 4.8% on a report that the conglomerate has tentatively agreed to pay more than $5.5 billion to resolve over 300,000 lawsuits claiming it sold the U.S. military defective combat earplugs.
The S&P 500 industrial sector, of which 3M is a constituent, was up 0.9% and led gains among the 11 major S&P sub-indexes.
China halved the stamp duty on stock trading effective Monday to boost its ailing market, sending U.S.-listed shares of Chinese companies, including JD.com, Baidu and Alibaba up between 2.5% and 3.7%.
U.S. Commerce Secretary Gina Raimondo discussed concerns about restrictions on American businesses including Intel and Micron with Chinese Commerce Minister Wang Wentao. Micron and Intel’s shares gained 1.8% and 0.1%respectively.
At 11:49 a.m. ET, the Dow Jones Industrial Average was up 166.01 points, or 0.48%, at 34,512.91, the S&P 500 was up 11.39 points, or 0.26%, at 4,417.10, and the Nasdaq Composite was up 46.50 points, or 0.34%, at 13,637.14.
The U.S. Federal Trade Commission suspended its challenge of Amgen’s $27.8 billion purchase of Horizon Therapeutics. Horizon’s shares rose 5.5%.
Goldman Sachs gained 1.4% after the lender struck a deal to sell an investment advisory business to wealth management firm Creative Planning LLC.
Advancing issues outnumbered decliners for a 3.82-to-1 ratio on the NYSE and a 1.78-to-1 ratio on the Nasdaq.
The S&P index recorded seven new 52-week highs and no new low, while the Nasdaq recorded 43 new highs and 101 new lows.