4:10pm: July jobs report, Big Tech earnings on deck this week
Stocks ended Monday mostly flat as investors prepared for a week of significant events, including a Federal Reserve rate decision, the July jobs report, and key earnings from major tech companies.
The S&P 500 gained nearly 0.1% to hit 5,464 points and the Nasdaq edged slightly above the flatline to finish at 17,370. The Dow couldn’t match its market counterparts, slipping 0.1% to end at 40,540.
The market remains cautious after recent volatility and a tech sell-off, with the Fed expected to hold rates steady this week despite a promising inflation reading.
Additionally, upcoming earnings reports from giants like Microsoft, Apple, Amazon, and Meta are anticipated to influence market sentiment.
12:42pm: Caution prevails
The three major stock indexes edged into positive territory in the early afternoon on Monday, with investors proceeding with caution ahead of key earnings reports and economic updates from central banks due later in the week.
The Nasdaq added 0.7% at 17,472, boosted by a 5.5% surge in Tesla Inc (NASDAQ:TSLA) on being named a “top pick” in the US auto sector by Morgan Stanley (NYSE:MS).
The S&P 500 was up 0.4% at 5,480 while the Dow Jones added 16 points at 40,605 points.
“Wall Street has rallied off its lows of the past week, but few traders will be willing to sound the all clear yet,” IG chief market analyst Chris Beauchamp commented.
“BoJ, Fed and BoE decisions, plus payrolls and earnings from the all-important tech sector, mean that it’s far too early to jump in with both feet.”
11:00am: No cause for alarm
Recent concerns over the pullback in major indexes may be overstated, according to Jay Woods, chief global strategist at Freedom Capital Markets (NASDAQ:FRHC).
"There are many pundits out there making a big deal about the recent pullback in the major indexes," he commented. "To me this is a normal, healthy and somewhat predictable drawdown in a cyclical bull market."
Historically, the S&P 500 experiences about three corrections of 5% annually; with the recent 4.9% decline and April's 5.5% correction, 2024 has seen its second such dip, Woods noted. Additionally, the Nasdaq 100 recently faced a 9.7% drop, approaching the average annual 10% pullback.
But there's nothing to fear, Woods assured.
"Fundamentally, nothing has changed. Earnings growth remains. Economic data for the most part has been encouraging and the Fed may be cutting rates."
9.47am: Nasdaq rises and Russell leaps
It was a mixed start for Wall Street in the opening trades of the week, though big tech and small caps were mostly higher.
The Dow Jones, down 0.1%, was the only one of the major indexes to fall into the red in early exchanges.
At the same time the Nasdaq Composite rose 0.8% and the S&P 500 was up 0.4%, while the Russell 2000 jumped 1.9%.
Of the big names in the Nasdaq and S&P indexes, Tesla stood out, up 3.9%, with semiconductor names, Nvidia, AMD and NXP all climbing over 1.5%.
Apple slipped 0.5% in early trades, while Microsoft edged 0.4% higher.
Dragging on the Dow were falls for Johnson & Johnson (NYSE:JNJ) and Honeywell, both down around 1%.
9.25am: Markets expecting major easing cycle
Optimism has been growing in the run-up to this week’s Federal Open Markets Committee meeting this week that several interest rate cuts could be coming in the next 18 months.
Markets are currently pricing 175 basis points of cuts over the next 18 months to January 2026, or seven quarter-point cuts, which is the most since early March, says Deutsche Bank macro strategist Jim Reid.
In the past, he says, such a degree of monetary policy easing over an 18-month period "has only previously been associated with recessions," apart from during the mid-1980s when real rates were still extremely high and that allowed room to cut rates from highly restrictive territory outside of the usual business cycle needs.
"There are three possible outcomes from here," says Reid.
One, like the many other times in this cycle that markets have jumped the gun on a dovish pivot, again the rate cut expectations will be pared back.
Two, we do see 175 bps of cuts, but this level of easing "only happens because we eventually see a recession".
Or three, the peculiarities of the post-Covid cycle, means that "we find we can ease rates by the amount the market is expecting without a recession. The perfect soft landing."
Options 1 or 2 are more likely than 3, reckons Reid, who reckons the market "has an inbuilt dovish rates bias and has probably not fully adjusted its r-star estimates post pandemic".
8.20am: Tech and small caps to set the pace
Futures markets are signalling that gains are in store for US stock markets on Monday, after last week saw Wall Street seemingly put the brakes on sell-off that had been going on for the best part of two weeks.
Futures for the Nasdaq 100 and S&P 500 are up 0.7% and 0.5%, while Dow Jones futures are up 0.4%.
Topping the lot are Russell 2000 futures, with the small and mid-cap index predicted to climb 0.8%.
"There is a sense of hope in the market this Monday morning after Friday’s PCE data boosted the expectation that the Federal Reserve (Fed) is getting very close to signaling its first rate cut in September," said market analyst Ipek Ozkardeskaya at Swissquote Bank.
"All in all, the data was read as a green light for the Fed to confirm that September is a good time to start cutting the rates."
The Fed will start its two-day policy meeting on Tuesday and will announce its policy decision on Wednesday, with a strong signal for a September cut already priced in by markets.
"The risk is that we meet a slightly cautious Powell, in which case there could be some correction in dovish Fed bets," said Ozkardeskaya.
Also this week four of the the ‘Magnificent Seven’ US tech giants report earnings, Apple, Microsoft, Amazon and Meta Platforms.