U.S. stocks struggled for direction Monday, holding levels that would secure a fifth consecutive month of gains for the S&P 500 amid optimism over corporate earnings and a resilient economy.
Investors were also awaiting the Monday afternoon release of a closely watched quarterly Federal Reserve survey of lenders for clues to the outlook for financial conditions.
What’s happening
-
The Dow Jones Industrial Average
DJIA,
+0.10%
was up 12 points, or less than 0.1%, at 35,472. -
The S&P 500
SPX,
-0.01%
edged down 2 points, or 0.1%, to 4,579. -
The Nasdaq Composite
COMP,
+0.04%
was off 2 points, or less than 0.1%, at 14,314.
The S&P 500 was up 3% in July through Friday’s close, on track for a fifth straight monthly gain, while the Dow saw a 3.1% July advance and the Nasdaq Composite gained 3.8%.
What’s driving markets
A calm start to the week leaves U.S. stocks eyeing a fifth consecutive month of gains.
The S&P 500 is up 15.4% over that period, and has advanced 19.3% for the year to date, after further indications of cooling inflation bolstered hopes the U.S. economy can avoid a sharp contraction as the end of Federal Reserve monetary tightening approaches.
Also supporting sentiment is a generally well-received second-quarter earnings season. With just over half of S&P 500 companies having reported results, 80% of them delivered a positive earnings per share surprise and 64% a positive revenue
surprise, according to FactSet.
This week brings another deluge of results, including earnings from Apple Inc.
AAPL,
and Amazon.com Inc.
AMZN,
on Thursday.
Meanwhile, rising Treasury yields, with the 10-year rate
TMUBMUSD10Y,
last week edging above the 4% threshold, are making some investors wary. Lofty stock-market valuations can make safe Treasury securities more attractive to investors.
The almost 20% year-to-date advance of the S&P 500 reflects “a lot of good news priced in” following a two-month stretch in which the economic data was solid enough to provide a “clear runway” to the soft-landing thesis — allowing stocks to rise unimpeded, said Jason Draho, head of Americas asset allocation at UBS, in a phone interview.
As a result, the S&P 500 “isn’t particularly cheap on a valuation basis,” he said. “The question is, ‘how much higher can it go?’ and investors could be reluctant to chase the performance.” Now that the Federal Reserve has raised rates into a “clearly restrictive level, the risk is that this will cause economic pain down the line.”
The Fed’s Senior Loan Officer Opinion Survey, due at 2 p.m. Eastern, “should show loan growth is weakening and that the economy should steadily weaken,” said Edward Moya, senior market analyst at Oanda, in a note.
But traders may hold off on taking new positions until they see Friday’s July jobs report, he said. “The key for the payroll report might be what is happening with wages, as it seems fears of an acceleration of inflation have been downsized,” Moya wrote.
See: Stocks are on a seemingly unstoppable hot streak, but this bond-market ‘tipping point’ could see it end in a hurry
Meanwhile, Scott Chronert, equity strategist at Citibank, raised his S&P 500 year-end target for 2023 and 2024 to 4,600 and 5,000 respectively.
“The near-term hurdles we envisioned headed into Q3 are now behind. The new targets reflect increased probability of a soft landing in our scenario approach. Related, stronger earnings growth headed into ’24 is an important call out. An index P/E above our fair value range can be attributed to the mega cap growth cohort. The implication is that we look to buy pullbacks to position for an earnings growth acceleration call in ’24,” Chronert summarized in a note to clients.
See: Citigroup raises S&P 500 target for 2023 on increased chances of ‘soft landing’
Chicago Fed President Austan Goolsbee, in an interview with Yahoo Finance on Monday, said that it would be a “historic triumph” for the central bank to achieve a so-called soft landing — referring to the rare feat of wrestling down inflation while averting recession.
Speaking on CBS News’ “Face the Nation,” Minneapolis Fed President Neel Kashkari on Sunday said the central bank’s current assessment is that the U.S. will pull off a so-called soft landing and avoid a recession. But he noted that core inflation, currently around 4.1%, is still double the Fed’s 2% target.
“We don’t want to declare victory” yet, he said according to a transcript, adding, “If we need to raise rates further from here, we will do so.”
The Chicago Business Barometer rose to 42.8 in July from 41.5 in June, falling short of the 43.3 reading expected by economists polled by The Wall Street Journal but marking the second consecutive month that the pace of contraction relaxed.
Companies in focus
-
Quest Diagnostics Inc.
DGX,
-0.29%
said Monday it has brought the first blood-based biomarker test to assess the risk of developing Alzheimer’s disease to market. Shares were off 0.3%. -
Shares of SoFi Technologies Inc.
SOFI,
+19.90%
rallied 17.9% after the financial-technology company raised its earnings outlook for the full year, while beating expectations for the latest period. -
Shares of Ford Motor Co.
F,
-1.32%
were off 1.2% Monday, after Jefferies analyst Philippe Houchois cut his rating to hold, after upgrading it to buy on May 30, citing “worse EV losses and strategic wobble.” He trimmed his stock price target to $15 from $17. -
AMC Entertainment Holdings Inc.
AMC,
+6.90%
enjoyed its “best week ever” based on admissions revenue from July 21 through July 27, the company said Monday, setting a new company record for U.S. theaters and global theaters. Shares rose 5.8%.
—Vivien Lou Chen contributed.
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