4.10pm:
Tech stocks staged a comeback on Monday ahead of quarterly earnings reports from heavyweights Tesla and Alphabet tomorrow.
On Monday, investors evaluated the political landscape after President Joe Biden's exit from the presidential race and anticipated the start of megacap tech earnings.
At the close, the S&P 500 had gained 1.1% to finish at 5,564, the Nasdaq rose roughly 1.6% at 18,008, and the Dow Jones increased 0.3% to end the day at 40,415.
Nvidia led the tech rebound, closing 4.8% higher after significant losses last week.
On the political front, Democratic leaders, including Nancy Pelosi, rallied around Vice President Kamala Harris on Monday following Biden's departure from the race.
12:30pm: Markets 'on edge'
Expectations the Fed will cut interest rates twice in 2024 and Joe Biden’s exit from the presidential race boosted markets on Monday, with the Nasdaq adding 1% at 17,898 points, the S&P 500 up 0.6% at 5,538 points, and the Dow Jones flat at 40,301 points in the early afternoon.
However, the rapidly changing political landscape is expected to see market volatility continue, deVere CEO Nigel Green commented.
“This has thrown a new variable into the 2024 election equation, putting markets on edge,” he said.
Investors are weighing up whether or not they should continue to bet on the "Trump Trade," which refers to market behaviours and trends which emerged during Trump’s presidency related to his administration’s looser fiscal policies, deregulation, higher tariffs, and infrastructure spending.
“The impact of these policies on the markets included a rising dollar, higher bond yields, specific sectors like banking, healthcare, energy, and industrials seeing gains due to deregulation and anticipated infrastructure projects, and Bitcoin seeing increased interest,” Green said.
“If Harris can gain significant traction and pose a credible threat to Trump’s lead in the polls, market volatility is expected to persist.”
11.05am: Two rate cuts this year?
Analysts from UBS are forecasting a 25 basis point (bp) reduction in the Federal Reserve's target range at both the September and December FOMC meetings, unless there is a significant upside surprise in inflation data.
"We suspect unexpectedly and quite weak employment data would be needed to create the urgency to lower rates more than that this year," they wrote in a note Monday.
The analysts are predicting that if the Federal Open Market Committee (FOMC) decides to lower interest rates at the September meeting, a second rate cut in December is likely. However, they expect that after December, the FOMC will focus on conveying a clear message that further "normalization" of interest rates is not guaranteed.
If progress toward the 2% inflation target stalls, additional rate cuts may be paused, they noted.
They also hope that the September meeting does not include vague or overly complex scenario analyses.
"What are we hoping we do not hear in September? Scenario analysis," they wrote. "The scenarios lack specificity, and just muddle the communications, in our view."
9.50am: Big tech powers Nasdaq to strong start
Big tech has again powered gains as Wall Street started the week on the front foot.
The Nasdaq Composite index surged 1.6% higher to back above 18,000 to open the Monday session over 275 points higher, with the S&P 500 rising 1%, as both indexes rebounded from a negative week, with the Dow Jones up 0.11%.
Enthusiasm for the small caps of the Russell 2000, which have benefited in the past two weeks, was not sustained in early trading, with the index down 0.63%,
Among the tech megacaps, Apple and Microsoft rose just under 1%, Alphabet and Meta over 2%, Nvidia was up 2.7% and Tesla 4.6%.
CrowdStrike was a notable faller, extending losses from last week, as the centre of the worldwide IT meltdown. Its shares are down over 8%.
8.05am: Nasdaq to lead rebound
Wall Street is expected to start the week on the front foot as markets react to Joe Biden dropping out of the presidential race over the weekend.
Tech stocks are predicted to lead the gains on Monday, with Nasdaq futures up 0.89%, followed by S&P 500 and Russell 2000 futures, which are both up 0.54%. Futures for the Dow Jones are up 0.13%.
Nvidia shares traded over 2% higher in pre-market trading, with Apple and Alphabet also up more than 1% premarket.
This follows Friday’s negative session which brought losses for all the majors, with indices closing near their respective daily lows. Looking back at last week, the S&P 500 dropped 2%, marking its worst week since April, while the tech-heavy NASDAQ 100 lost 3.7%.
Over the past week, the Dow and Russell indexes both gained ground as investors shifted some money out of big tech stocks.
President Biden announced on Sunday that he would no longer be standing against Donald Trump, and instead backed Vice-President Kamala Harris to be the Democratic Party candidate.
The dollar weakened slightly against most major currencies in the immediate aftermath, and was down again this morning.
Biden had been on the receiving end of direct pleas and strong signal to withdraw from the race from senior Democrats and top donors after a poor showing in a TV debate with former President Trump, who saw his polling lead grow nationally and in swing states.
Democrats will select a new nominee at their convention in Chicago from August 19–22, with several potential leading candidates swinging in behind Harris this morning.
"The outcome of the election could be consequential for investors," said UBS chief investment officer Mark Haefele, "especially if either party wins control of both the White House and Congress.
"A Trump victory—especially if supported by a Republican majority in Congress — would likely raise market expectations of tax cuts and lighter business regulation, while adding to concerns over higher trade tariffs. Primary beneficiaries of regulatory changes could include the financial services sector, while higher tariffs on imports could harm US companies with global supply chains."
If Harris or whoever is chosen leads the Democrats to extend their administration, this is likely to see continued support for initiatives benefiting green energy, efficiency, and electric vehicle makers, Haefele said.
In the near term, investors "should expect some market volatility" as investors digest the news, he added, but pointed out that US political outcomes "are far from the largest driver of financial market returns, or even sector performance".