(Bloomberg) — Stocks rebounded after their worst week since April as investors looked beyond Joe Biden wrapping up his re-election campaign to focus on the start of technology earnings season.
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The megacap space rebounded, with the Nasdaq 100 rising 1.2%. Despite the recent slump that has some investors on Wall Street bracing for a summer correction, respondents to Bloomberg’s Markets Live Pulse survey expect earnings to reinvigorate the S&P 500. With Tesla Inc.’s results, the 463 respondents to the questionnaire expect corporate profits to boost U.S. stocks.
Sky-high valuations and seasonal weakness have prompted some pullback warnings, with traders also facing political uncertainty. However, the market reaction to Biden’s decision to drop out of the race and support Kamala Harris has so far been quite subdued, with the US dollar little changed and Treasury bonds slightly higher.
“This policy shift is unlikely to materially alter the direction of markets,” said Tom Essaye on The Sevens Report. “The ultimate direction of the S&P 500 will still be determined by economic growth.”
The S&P 500 rose to 5,540. A Bloomberg gauge of the “Magnificent Seven” megacaps rose 2.2%. Tesla Inc. and Nvidia Corp. added at least 3.5%. CrowdStrike Holdings Inc. fell 12% amid the ongoing fallout from a faulty software update from the cybersecurity company. The Russell 2000 of smaller companies fell 0.2% after last week’s rise.
10-year Treasury yields fell two basis points to 4.22%. Investors will also be focused this week on readings from the U.S. economy, especially the Federal Reserve’s preferred inflation gauge, for clues about whether the central bank will be able to cut rates in September.
The recent outperformance of U.S. small caps faces technical resistance and lacks the fundamentals to continue over a longer period of time, according to Mike Wilson, chief U.S. equity strategist at Morgan Stanley.
“While we respect the still light sentiment/positioning in small caps, we see limited fundamental and macro justification for small cap outperformance to continue in a durable manner,” Wilson and his team said in a note to clients.
Hedge funds have aggressively reduced risk in their long and short portfolios and at the fastest pace since January 2021, according to a note from the main brokerage desk of Goldman Sachs Group Inc. The move came amid market rotation in last week for small caps and increased volatility.
The aggressive shift from U.S. tech giants to some of the stock market’s laggards looks set to continue as traders expect the Fed to cut interest rates later this year, but fundamentals still don’t support the hunt for stocks. small cap, according to Morgan Stanley’s Lisa. Shalett.
“Blow the persecution down to lowercase, which is probably unsustainable,” she wrote.
Corporate Highlights:
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Verizon Communications Inc. reported operating revenue that fell short of analysts’ estimates as fewer people upgraded wireless equipment.
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Most McDonald’s Corp. restaurants are in the US will extend the burger chain’s $5 meal deal in a bid to attract customers on a budget.
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Delta Air Lines Inc. apologized for canceling thousands of flights during the busiest travel weekend of the summer as many of its systems failed following CrowdStrike Holdings Inc.’s catastrophic IT outage.
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Ryanair Holdings Plc lowered its outlook for ticket prices in the crucial summer travel period and said fares will be “materially lower” as consumers become more cautious, adding to pessimism that the post-war recovery will pandemic on flights is failing.
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Berkshire Hathaway Inc. sold another block of BYD Co. shares, bringing its stake in one of the world’s biggest automakers to less than 5%, up from more than 20% two years ago.
Main events this week:
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Eurozone consumer confidence, Tuesday
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US Existing Home Sales Tuesday
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Alphabet, Tesla, LVMH Earnings, Tuesday
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Canada Rate Decision Wednesday
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US new home sales, S&P Global PMI, Wednesday
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IBM and Deutsche Bank Earnings Wednesday
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IFO business climate in Germany, Thursday
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US GDP, initial unemployment claims, durable goods, Thursday
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US Personal Income, PCE Price Index, University of Michigan Consumer Sentiment, Friday
Some of the main movements in the markets:
Actions
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The S&P 500 was up 0.6% at 10:03 a.m. New York time
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The Nasdaq 100 rose 1.2%
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The Dow Jones Industrial Average has changed little
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The Stoxx Europe 600 rose 0.9%
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The MSCI World index rose 0.5%
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The Russell 2000 index fell 0.2%
Coins
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The Bloomberg Dollar Spot index was little changed
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The euro was unchanged at $1.0882
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The British pound was little changed at $1.2917
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The Japanese yen rose 0.4% to 156.78 per dollar
Cryptocurrencies
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Bitcoin fell 0.8% to $67,175.71
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Ether fell 0.8% to $3,470.2
Titles
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The 10-year Treasury yield fell two basis points to 4.22%
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Germany’s 10-year yield little changed at 2.47%
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Britain’s 10-year yield rose one basis point to 4.14%
goods
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West Texas Intermediate crude fell 0.9% to $79.39 a barrel
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Spot gold fell 0.3% to $2,392.81 an ounce
This story was produced with help from Bloomberg Automation.
–With assistance from John Viljoen, Sujata Rao, Matthew Burgess, Alexandra Semenova and Kasia Klimasinska.
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