U.S. stocks traded lower early Monday to kick off August after the biggest monthly gains since November 2020 for the S&P 500 left investors to debate whether gains mark a bottom or merely a bear-market bounce from the June lows.
What’s happening
- The Dow Jones Industrial Average DJIA, +0.27% fell 179 points, or 0.6%, to 32,665.
- The S&P 500 SPX, +0.28% was down 32 points, or 0.8%, at 4,099.
- The Nasdaq Composite COMP, +0.74% shed 97 points, or 0.8%, to trade at 12,294.
Stocks ended sharply higher on Friday, leaving the Dow up 6.7% for the month, while the S&P 500 saw a 9.1% July jump, the biggest monthly gains for both since November 2020. The Nasdaq surged 12.3% for its best monthly performance since April 2020 and its strongest July on record, according to Dow Jones Market Data.
What’s driving the market
Big gains for stock indexes last week capped a strong July bounce fueled by earnings that have so far been better than feared. Investors also cheered what they saw as signals the Federal Reserve might not have to raise rates as aggressively as previously expected as the economy slows.
“In equity markets, there were few signs of caution about how Fed speakers and the upcoming data might affect the narrative as generally impressive earnings results in both America and Europe gave the bulls the upper hand, while the retreat in yields provided additional support,” said Raffi Boyadjian, lead investment analyst at XM, in a note.
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On Friday, data showed that higher gasoline prices led the personal-consumption-expenditures price index up 1% in June, exceeding forecasts of 0.9%. June inflation measured by the PCE index showed the cost of living over the past year climbed 6.8%, the highest rate since January 1982.
Last Wednesday, the Fed ended its two-day policy meeting with another 75-basis-point rate hike in an effort to curb soaring inflation. Fed Chair Jerome Powell said last week that another 75 basis-point move could be considered in September but that the Fed would take a data-dependent, meeting-by-meeting approach to decisions.
Powell also warned that the economy would need to see a period of below-trend growth to rein in red-hot inflation and that the path to a so-called soft landing for the economy continued to narrow.
Skeptics contend bulls, in looking for a so-called pivot from the Fed, were misreading the message from central bankers.
Federal Reserve Bank of Minneapolis President Neel Kashkari said Sunday that the central bank is still committed to its goal of 2% inflation. However, “We are a long way away” from that goal, he said in an interview on CBS News’ “Face the Nation.”
“Investors run the risk of reading too much into Powell’s somewhat toned down hawkish rhetoric last week and have brushed off hawkish remarks by the Fed’s most dovish policy maker, Neel Kashkari, on Sunday, likely because he is not a voting FOMC member this year,” Boyadjian said.
More than 170 S&P 500 companies reported results last week, while more than 150 are slated to report this week. Just two components of the Dow were slated to report, with Caterpillar Inc. CAT, -0.97%, with just two components expected to report—Caterpillar Inc. due on Tuesday and Amgen Inc. AMGN, -0.77% set for Thursday.
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Chinese manufacturing activity unexpectedly contracted in July, as Beijing’s COVID-19 restrictions and weak demand undercut hopes for a more robust economic revival. The official manufacturing purchasing managers index pulled back to 49.0 in July from 50.2 in June, China’s National Bureau of Statistics said Sunday. The result left the index below the 50 level that separates expansion from contraction and short of the median forecast of 50.3 among economists polled by The Wall Street Journal.
The Institute for Supply Management’s closely watched manufacturing index for July is due at 10 a.m. Data on July construction spending is also slated for 10 a.m., while the final July reading of the S&P manufacturing purchasing managers index will come out at 9:45 a.m.
Companies in focus
- Shares of Boeing Co. BA, +6.76% rose 4.6% to lead Dow gainers after the aerospace and defense giant reportedly cleared a hurdle with the Federal Aviation Administration that could allow it to resume deliveries of its 787 airliner. The FAA said it would approve Boeing’s process for validating fixes to each 787 plane before they are delivered to customers, according to an Associated Press report. Separately, The Wall Street Journal reported that Boeing’s defense manufacturing plants will vote on Wednesday on a labor contract proposal, which temporarily delays a strike that was scheduled to begin as soon as Monday.
- U.S.-listed shares of Nio Inc. NIO, +4.49% were up 3% after the China-based electric vehicle maker reported deliveries rose in July from a year ago to mark a third-straight monthly increase.
- Alibaba Group Holding Ltd. BABA, -0.19% acknowledged in a Monday filing that it has been identified by the Securities and Exchange Commission as a foreign company whose auditing paperwork couldn’t be fully inspected by the Public Company Accounting Oversight Board, though the company said it would work to stay listed on the New York Stock Exchange. Shares were down 0.7% after a drop of around 11% on Friday.
- Shares of Perkin Elmer Inc. PKI, +8.91% jumped nearly 9% after the disease diagnosis company announced an agreement to sell its Applied, Food and Enterprise Services businesses for $2.45 billion in cash to private-equity firm New Mountain Capital.
- Automotive oil, additives and lubricant maker Valvoline Inc. VVV, +0.59% said Monday it has reached an agreement with Saudi Aramco 2222, -0.13% to sell its global products business for $2.65 billion in cash. Valvoline shares rose 2%.
Other assets
- The yield on the 10-year Treasury note TMUBMUSD10Y, 2.599% was little changed at 2.641%. Yields and debt prices move opposite each other.
- The ICE U.S. Dollar Index DXY, -0.60%, a measure of the currency against a basket of six major rivals, fell 0.5%.
- The U.S. oil benchmark CL.1, -5.00% dropped 5% to $93.66 a barrel, while gold futures GC00, +0.26% gained 0.3% to $1,787 an ounce.
- Bitcoin BTCUSD, -1.65% fell 1.3% to trade near $23,084.
- The Stoxx Europe 600 SXXP, +0.03% edged down 0.1%, while London’s FTSE 100 UKX, +0.14% was up 0.1%.
- The Shanghai Composite SHCOMP, +0.21% ended 0.2% higher, while the Hang Seng Index HSI, +0.05% eked out a fractional gain and Japan’s Nikkei 225 NIK, +0.69% advanced 0.7%.