(Bloomberg) — Stocks staged a rebound amid a rally in beaten-down chipmakers, with the latest economic data bolstering bets the Federal Reserve will signal a rate cut in September.
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Equities saw solid gains as Nvidia Corp. surged 10% after being renamed the top US chip stock pick by Morgan Stanley analysts. Advanced Micro Devices Inc. jumped on a bullish outlook. The US Treasury left its quarterly issuance of longer-term debt unchanged for the second straight time, and maintained its guidance that it doesn’t expect to need increasing issuance of notes and bonds for “several quarters.”
A broad gauge of US labor cost growth closely watched by the Fed cooled in the second quarter by more than forecast. American companies added the fewest number of workers since the start of the year and wage growth slowed. Separately, pending home sales rose for the first time in three months.
Fed officials are likely to move closer to lowering rates from a two-decade high by signaling a potential rate cut in September, though they may stop short of providing details beyond that. The decision will be announced via a post-meeting statement at 2 p.m. in Washington. Fed Chair Jerome Powell will hold a press conference 30 minutes later.
To Thierry Wizman at Macquarie, the Fed will need to “thread a needle.”
“A too-strong signal of a coming September rate cut may scare traders into thinking that the Fed sees abrupt economic weakness ahead,” he noted. “A too-weak signal, where a rate cut hinges on the data ‘evolving as we expect’ in the context of lingering attentiveness to inflation may not sound satisfactory to the bulls.”
The S&P 500 climbed 1.5%. The Nasdaq 100 rose 2.7% and the Russell 2000 added 0.2%. As Meta Platforms Inc. gets ready to report earnings, investors will be hoping it can do a better job than Microsoft Corp. and Alphabet Inc. in convincing Wall Street that lofty spending on AI will be worth it. Mastercard Inc. soared on a profit beat. Boeing Co. gained after appointing a new chief.
Treasury 10-year yields declined four basis points to 4.09%. The Bloomberg Dollar Spot Index fell 0.6%. Oil jumped after Hamas said Israel killed its political leader, stoking geopolitical risks. The yen climbed 2% as the Bank of Japan raised interest rates and announced plans to cut bond purchases.
“The Fed could justify a rate cut today based on current data on the job market and inflation, as well as the plausible case for both to cool in the near term,” said Bill Adams at Comerica Bank. “But the Fed is also concerned about their credibility, which they fear may have been dented by inflation’s overshoot in the last three years.”
A survey conducted by 22V Research shows 75% of investors believe that the Fed will first cut because of a soft landing and that inflation is on a Fed-friendly path toward sub-3%, so there will be a cut because policy doesn’t need to be as restrictive.
“This is 11% higher than when we asked last month. Investor confidence around a soft-landing is increasing,” said Dennis DeBusschere, founder of 22V.
In addition, 44% of the investors polled by 22V expect the Fed meeting/presser to be “mixed/negligible,” 38% believe “risk-on” and 18% “risk-off”
The road ahead for investors is looking rough right now as policy gatherings by the world’s most important central banks come at the start of what’s historically the worst two months for US stock returns.
In the past three decades, the S&P 500 Index in August and September has averaged respective losses of 0.5% and 0.7%, data compiled by Bloomberg show. Those seasonal patterns create another headache for traders since the broadening of this year’s powerful stock-market rally hangs on what the Fed signals about interest rates once its two-day meeting wraps up this afternoon.
“We continue to see a favorable backdrop for US equities and advise investors to maintain a full allocation to the US market,” said Solita Marcelli at UBS Global Wealth Management. “We believe AI beneficiaries should continue to account for a substantial part of portfolios as the technology drives further growth in the years ahead, but we also see opportunities in other quality companies, including those exposed to secular trends like the energy transition, blue economy, and water scarcity.”
Corporate Highlights:
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The Biden administration is preparing to implement a sweeping new trade restriction — known as the foreign direct product rule — to keep China from accessing advanced semiconductor technology. But Tokyo Electron Ltd., ASML Holding NV and other chip companies in the Netherlands and Japan are expected to be exempt from the new limits, said the people, asking not to be identified discussing private negotiations.
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Johnson Controls International Plc’s has launched a search for a new chief executive officer to succeed George Oliver, who plans to retire from the provider of commercial building systems and software.
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Mastercard Inc. shares rose the most in more than 20 months after profit beat analysts’ estimates on strength in customer spending and online payments.
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Delta Air Lines Inc. is bracing for a $500 million negative impact from the technology breakdown this month that led to thousands of canceled flights and tarnished the carrier’s reputation.
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T-Mobile US Inc. reported new monthly mobile-phone subscribers that exceeded analyst estimates, joining its peers in wooing new customers in the second quarter.
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Dupont de Nemours Inc. second-quarter profit exceeded investor expectations, as AI-driven demand for semiconductors drove gains in its electronics business.
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Citigroup Inc. is working to fix compliance issues linked to rules that protect customers’ insured deposits, according to a person familiar with the matter.
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KKR & Co. posted a second-quarter profit that beat Wall Street estimates as the buyout firm generated more income than expected from selling assets.
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Humana Inc. shares tumbled after the company warned of higher-than-expected inpatient hospital admissions that point toward elevated costs for the insurer.
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Samsung Electronics Co. reported its fastest pace of net income growth since 2010 and said it plans to double output of the high-end chips fueling the artificial intelligence boom next year.
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Pinterest Inc. warned that revenue in the current quarter will be lower than analysts’ predictions.
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The New York City Mayor’s Office has struck a deal with Uber Technologies Inc. and Lyft Inc. to rein in lockouts and stop onboarding new drivers. In exchange, the city’s taxi regulator agreed not to impose new rules on the rideshare companies.
Key events this week:
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Eurozone S&P Global Eurozone Manufacturing PMI, unemployment, Thursday
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US initial jobless claims, ISM Manufacturing, Thursday
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Amazon, Apple earnings, Thursday
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Bank of England rate decision, Thursday
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US employment, factory orders, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 rose 1.5% as of 10:27 a.m. New York time
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The Nasdaq 100 rose 2.7%
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The Dow Jones Industrial Average rose 0.2%
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The Stoxx Europe 600 rose 0.8%
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The MSCI World Index rose 1.6%
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Bloomberg Magnificent 7 Total Return Index rose 3.1%
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The Russell 2000 Index rose 0.2%
Currencies
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The Bloomberg Dollar Spot Index fell 0.5%
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The euro rose 0.2% to $1.0838
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The British pound was little changed at $1.2840
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The Japanese yen rose 1.7% to 150.20 per dollar
Cryptocurrencies
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Bitcoin was little changed at $66,125.26
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Ether rose 1% to $3,312.1
Bonds
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The yield on 10-year Treasuries declined four basis points to 4.09%
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Germany’s 10-year yield declined three basis points to 2.31%
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Britain’s 10-year yield declined seven basis points to 3.98%
Commodities
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West Texas Intermediate crude rose 3.2% to $77.10 a barrel
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Spot gold rose 0.5% to $2,422.63 an ounce
This story was produced with the assistance of Bloomberg Automation.
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