Stocks See Best Week in ’24 as Buyers Race Back In: Markets Wrap

(Bloomberg) — A flurry of data showing US economic resilience drove stocks to their best week this year, with dip buyers stepping in after a recent rout.

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Equities rose on Friday, with the S&P 500 extending a seven-day rally to 6.8% — the best performance in such a span since October 2022. Just a week ahead of Jerome Powell’s speech in Jackson Hole, Wyoming, traders hope the Federal Reserve chief will set expectations for the next policy gathering. While officials have brought down inflation, the labor market is still a wild card.

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The stock market halted a streak of four weeks of losses that had been partially driven by concern the Fed wouldn’t reduce borrowing costs fast enough to prevent a deeper slowdown in the largest economy. Data this week showing ebbing inflation and a resilient consumer rekindled hopes the Fed will be able to achieve a soft landing.

“This week’s reassuring inflation data has bolstered investor confidence, leading to a notable surge in market optimism,” said Mark Hackett at Nationwide. “The persistent ‘buy-the-dip’ mentality remains in play, as investors who had moved to the sidelines over the last month raced to get back in.”

The S&P 500 rose to around 5,555. Most megacaps gained, with Nvidia Corp. leading the charge. Nike Inc. saw its longest winning streak in more than eight years. Applied Materials Inc. sank after a sales forecast that disappointed investors looking for a bigger payoff from artificial-intelligence spending. Wall Street’s “fear gauge” – the VIX – dropped below 15.

Treasury 10-year yields fell three basis points to 3.88%. The dollar had its third straight week losses — the longest streak since March. Hedge funds turned bullish on Japan’s currency for the first time since 2021 after sharp swings in foreign-exchange markets led to a blow-up of a popular yen trade.

Gold topped $2,500 on hopes the Fed is edging closer to cutting rates.

With US equities on the rebound, this summer’s selloff is looking more like a pause in the bull market than the beginning of its end.

Of course, traders have struggled to forecast where the economy is headed — and the recession fears that helped drive the recent pullback could resurface again just as quickly as they faded. On top of that, the US elections and geopolitical tensions are adding other elements of uncertainty. But beneath the surface, there are some reassuring signals.

Among them: The selloff hit a relatively small slice of the market, with nowhere near the breadth of the routs set off by the Fed’s rate hikes, the pandemic and other pivotal events. And while valuations are at risk of another recalibration if the economy does wind up sputtering, the S&P 500 during the recent retreat held above a threshold that — to technical analysts, at least — telegraphs investors’ continued confidence.

Positioning and macro factors shift the market skew to positive, but investors should still focus on buying high-quality assets, according to Tony Pasquariello at Goldman Sachs Group Inc.

“The speculative community has cleaned up a decent amount of length since the July highs,” Pasquariello wrote in note to clients Friday, referring to Goldman’s prime brokerage data that tracks hedge funds’ positioning and the latest update from the Commodity Futures Trading Commission.

“The week was essentially a ‘one way’ week, harshly punishing pessimistic outlooks,” said Florian Ielpo at Lombard Odier Investment Managers. “Nonetheless, the economic data still comes with contradictions. Significant uncertainties persist, warranting caution against excessive optimism.”

At Bank of America Corp., Ralf Preusser says the next few weeks will likely determine whether the Fed ends up cutting by 50-75 basis points this year or more aggressively.

“We maintain a bullish bias in US rates, and would see a Jackson Hole-induced selloff as an opportunity to buy,” he noted.

Five Big Questions for the Fed at Jackson Hole: Bill Dudley

Fed Chair Powell will speak next Friday at the Kansas City Fed’s Jackson Hole Economic Policy Symposium.

With the central bank on the cusp of lowering interest rates from a more than two-decade high, Powell’s comments will be closely parsed for any hints on how the Fed chief is viewing the economy in the wake of a weaker-than-expected jobs report and further easing in inflation.

Pricing in the swap market has stabilized, implying around 30 basis points of easing next month and about 93 basis points by the end of the year. That marks a big retreat after traders were indicating more than 150 basis points of Fed cuts for 2024 earlier this month.

“Investors will also be looking for any guidance as to whether Powell is leaning toward a 25 or 50 basis-point rate cut,” said Ian Lyngen at BMO Capital Markets. “We’re in the 25 basis-point cut camp to be sure, and we anticipate the Chair will err on the side of flexibility by utilizing the time-tested ‘data dependent’ framing.”

“We look for Powell to signal that given recent progress, the Fed is likely to ease policy next month — without fully committing to the size of the rate cut,” according to TD Securities’ strategists. “We expect a 25 basis-point reduction.”

While recent data have indicated that a 25-basis point cut in September seems more probable than a bigger reduction, given the Fed’s increasing emphasis on the labor market, the next jobs report will be crucial in determining the final decision, according to Fawad Razaqzada at City Index and Forex.com.

“The main message in Powell’s speech will likely be that monetary policy overall has worked as intended, and the current level of rates is restrictive,” said Anna Wong at Bloomberg Economics. “He may say the balance of risk between the Fed’s mandates – employment and inflation – is about even. We expect him to signal a rate cut is coming, but not to indicate whether it will be 25 basis points or 50 bps. That will depend on the August jobs report.”

The more I think about and discuss the likely outcomes for next week’s Jackson Hole meeting, the more I return to this concern: that Chair Powell will tell us to “curb your enthusiasm,” said Steve Sosnick at Interactive Brokers.

“It hardly seems appropriate for Chair Powell to re-affirm (the market’s) likelihood (of more than three cuts this year) at his Jackson Hole address next week given that it would put him well ahead of the last Summary of Economic Projections just weeks before the next one is due,” he noted.

Corporate Highlights:

Mastercard Inc. is cutting 3% of staff worldwide, according to a spokesperson for the payments network.
Boeing Co. Chief Executive Officer Kelly Ortberg met with union representatives during his first week on the job and said he’s “committed to reset” the relationship the company’s relationship with workers as the US planemaker heads into crucial labor negotiations next month.
Fox Corp., Warner Bros. Discovery Inc. and Walt Disney Co. were blocked by a judge from launching their streaming sports service one week before its rollout, taking a blow from their smaller rival FuboTV Inc.
Texas Instruments Inc. is set to receive $1.6 billion in Chips Act grants and $3 billion in loans, the Biden administration announced Friday, marking the latest major award from a program designed to boost American semiconductor manufacturing.
Rivian Automotive Inc. has paused production of the electric commercial van it makes for Amazon.com Inc. due to a parts shortage in the latest supply chain snafu for the EV maker.
Bayer AG shares jumped following a significant win for the German company in the long-running cancer litigation over its Roundup weedkiller.
A combination Covid-flu vaccination developed by Pfizer Inc. and BioNTech SE missed on one of its goals in a final-stage trial, a setback for the companies as they search for lucrative new uses of a technology that succeeded in the pandemic.