The S&P 500 and Nasdaq Composite indexes struggled to hold gains heading into afternoon trading on Monday, as investors await this week’s consumer price index report for July, which could lead to expectations for further Fed tightening.
The Dow Jones Industrial Average
was up 30 points, or 0.1%, at 32,835, after paring an earlier gain of more than 300 points.
The S&P 500
fell 2 points, or less than 0.1%, to 4,143.
The Nasdaq Composite
slipped 2 points to 12,660.
The Dow fell 0.1% last week, while the S&P 500 ticked up 0.4%, and the Nasdaq Composite advanced 2.2%. The S&P 500 is up for three consecutive weeks, but remains down 13% for the year to date.
What’s driving markets
Stocks struggled to hold modest gains after all three major stock indexes initially opened higher on Monday, with investors gauging whether recent pessimism over corporate prospects has been overdone.
Traders also were hoping that a robust labor market would challenge recent evidence of a slowing U.S. economy, while generally well-received second-quarter company earnings season comes to a close.
But last week’s strong jobs report for July also makes it more difficult for investors to entertain the idea the Fed will relent on its rate-hike plans anytime soon, according to Morgan Stanley equity strategist Michael Wilson. “The strong labor report on Friday suggests companies have yet to cut labor in an effort to protect margins while simultaneously delaying any Fed pivot,” Wilson wrote in a note.
“The rally in stocks has been powerful and has investors believing the bear market is over and looking forward to better times,” the strategist said. “However, we think it’s premature to sound the all-clear simply because inflation has peaked. The next leg lower may have to wait until September when our negative operating leverage thesis is better reflected in earnings estimates. However, with valuations this stretched, we think the best part of the rally is over.”
The market rally now faces some technical challenges heading into Wednesday’s consumer price index report for July, some observers say. The S&P 500 surge of late has left its 14-day relative strength index, a closely watched momentum gauge, at 71.6 and in overbought territory. The benchmark index now is also eyeing resistance at the 4,200 level, and if that is breached then the 200-day moving average looms into view.
Source: Evercore ISI
“For investors, economic and policy uncertainty translating into continued trade in the S&P 500 below 4,200 and 4,340 leaves open the possibility of lower lows,” said analysts at Evercore ISI.
Investors were also assessing the implications of a massive healthcare, climate and tax package that passed the Senate on a party-line vote Sunday, handing President Joe Biden a political victory. The package is expected to win approval in the Democratic-controlled House.
It includes an extension of a tax credit for the purchase of electric vehicles. Shares of Tesla Inc.
were up 3.8%.
Earnings season, which has so far been characterized as not as bad as feared, is moving into the home stretch. Some 435 members of the S&P 500 had reported second-quarter results as of Friday morning, and year-over-year growth in the blended estimate for earnings per share, which includes reported results and estimates of still-to-be-reported results, stands at 6.8%, according to FactSet. That’s up from an estimate of 5.6% as of March 31.
Supporting the market mood is a calmer tone in sovereign bonds, with the U.S. 10-year Treasury yield
which had jumped on Friday following the jobs data, easing 7 basis points to 2.77%.
Companies in focus
Shares of AMC Entertainment Holdings Inc.
jumped 11.8%, putting them on track for a sixth straight gain to the highest close in more than four months. The rally comes after the movie theater operator announced last week it will issue a special “APE” dividend, in the form of AMC Preferred Equity Units that will trade on the New York Stock Exchange.
Fellow meme-stock favorite GameStop Corp.
shares dropped 8.8% after the semiconductor company disclosed that it expects to fall well short of revenue expectations for its latest quarter, largely due to gaming weakness.
Class A shares of Warren Buffett’s Berkshire Hathaway Inc.
rose 0.3% even after the company reported a $43.76 billion loss in the second quarter on Saturday as the paper value of its investments plummeted. Berkshire’s operating earnings, which exclude some investment results, rose to $9.28 billion from $6.69 billion a year earlier. Buffett has said operating earnings are his preferred gauge for measuring performance.
Palantir Technologies Inc.
shares were down 12.3% after the software company posted a surprise adjusted loss on a per-share basis and delivered revenue guidance that fell short of the consensus view.
How other assets are faring
The ICE Dollar index
advanced 2.6% to $23,879.
The U.S. oil benchmark CL.1 was up 1.2% to trade at $90.05.
Asia markets posted a mixed finish after another COVID-19 lockdown in a part of China impacted sentiment. Hong Kong’s Hang Seng
closed down by 0.8%, while Japan’s Nikkei 225
finished up by 0.3%.
— Jamie Chisholm contributed to this article.