U.S. stock indexes rose on Monday, extending gains made last week on investors betting on a greater chance of the Federal Reserve cutting interest rates this year.
The benchmark S&P 500 and the tech-heavy Nasdaq hit three-week highs after data on Friday showed U.S. job growth slowed more than expected in April, taking pressure off the U.S. central bank to keep rates higher for longer.
“The economic news has been just right. It’s still eliciting signs of underlying strength in the economy that should allow earnings growth to continue to foster an environment where stock prices can advance,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
“At the same time, it is not running so hot as to once again threaten the Fed’s current posture.”
Speaking on Monday, Richmond Fed President Thomas Barkin said the current interest rate level should cool the economy enough to return inflation to the central bank’s 2% target, with the strength of the job market giving officials time to wait.
Barkin, a voter this year on interest rate policy, added that inflation “data whiplash” supported the Fed’s deliberative policy towards interest rates.
Such commentary echoed the Fed last week signaling it was leaning toward eventual reductions in borrowing costs, but wants to gain “greater confidence” that inflation will continue to fall before cutting rates.
Traders are currently pricing in rate cuts worth 46 basis points from the Fed by the end of 2024, with the first cut expected in September or November, according to LSEG’s rate probability app.
At 01:58 p.m. the Dow Jones Industrial Average rose 129.72 points, or 0.34%, to 38,805.40, the S&P 500 gained 36.30 points, or 0.71%, to 5,164.09 and the Nasdaq Composite gained 130.06 points, or 0.81%, to 16,286.69
Nine of 11 S&P 500 sectors traded in positive territory. The energy index was among the leading gainers, rising 1% in part due to U.S. natural gas futures hitting their highest level in 14 weeks. [O/R]
With the earnings season in full swing, investors will also keep an eye on quarterly numbers from major firms, including Walt Disney and Uber this week.
Of the 397 firms in the S&P 500 that have reported earnings through Friday, 76.8% beat analysts’ profit estimates, compared with the long-term average of 66.7%, as per LSEG data.
Arm Holdings is another with earnings on deck this week. It was up 4.6% on Monday, as chipmakers broadly gained.
Micron Technology increased 4.6% after a report said Baird upgraded the stock, and Advanced Micro Devices and Super Micro Computer were, respectively, 2.9% and 5.2% higher - recovering ground lost after disappointing earnings from the pair last week.
Paramount Global added 4.9% after the media company ended its exclusive negotiations with Skydance Media without a deal, allowing the special committee to entertain other offers from rival bidders.
Tyson Foods fell 8.2% after the meatpacker surpassed Wall Street expectations for second-quarter profit but warned that consumers were under pressure from persistent inflation.
Meanwhile, Spirit Airlines hit a record low, slumping 12%, after reporting a weak revenue outlook for the second quarter.
By contrast, other airlines soared, with American Airlines and Southwest Airlines both gaining more than 5%.