U.S. Stocks Rise Amid a Buying Frenzy After a Sell-Off: A new wave of buying U.S. stocks at lower prices has driven a rebound following a sell-off triggered by economic concerns.
Traders are awaiting inflation data this week to indicate the potential size of the Federal Reserve’s interest rate cuts.
Content
Slight Movements in Treasury Bonds
The Role of Soft and Hard Landing
Anticipation of the Consumer Price Index Report
Rise of Major Companies
All major sectors within the S&P 500 index rose by about 1%. According to Bespoke Investment Group,
this increase followed the worst start to September since market data recording began in 1953.
Tesla and Nvidia led the gains among major companies.
Meanwhile, Apple launched its latest iPhone 16, which CEO Tim Cook stated
was designed to fully leverage artificial intelligence, but its stock fell by 1.8%.
Tom Essaye of The Sevens Report commented, “We often see technical buying when prices drop,” adding,
“Economic growth is undoubtedly losing momentum, but a soft landing remains more likely than a hard one.
This week, the focus returns to inflation.”
Slight Movements in Treasury Bonds
Treasury bonds saw slight movements, with the probability of a half-point rate cut
at the Federal Reserve’s September meeting, dropping 20% from 50% last week.
According to a survey by the Federal Reserve Bank of New York published on Monday,
inflation expectations in the U.S. remained stable while fears of a default increased.
The S&P 500 hovered near the 5,460-point level, while the Nasdaq 100 rose by 0.8%,
and the Dow Jones Industrial Average added 1.1%.
Boeing shares rose amid optimism that a labor agreement would prevent a strike.
At the same time, Google, a subsidiary of Alphabet,
returned to court to face allegations by the Justice Department that it was manipulating the digital advertising market.
Oracle is expected to announce its results later today, Monday.
A Risky Situation
Ten-year Treasury yields remained stable at 3.7%.
The dollar rose, and Bitcoinsurpassed the $56,000 mark.
Craig Johnson of Piper Sandler stated,
“Stock investors are navigating a risky situation between optimism
over potential Fed rate cuts and fears of recession and the political landscape.”
He added, “Technical analysis of common market averages suggests
that last week’s weakness was merely a pullback within a long-term upward trend.”
On the other hand, according to RBC Capital Markets strategists,
U.S. stocks may remain volatile.
They could see further declines in the near term amid risks associated with seasonality,
sentiment, and the upcoming presidential election.
A team of strategists led by Lori Calvasina wrote in a note that
“any additional damage would remain within the range of a 10% pullback.”
They added that if hard landing fears escalate,
the risk of a decline linked to growth concerns in the range of 14%-20% “would also increase.”
Signals from the Labor Market
With labor market data indicating a slowdown rather than an imminent recession,
HSBC strategists led by Max Kettner said they are increasing their additional positions
in U.S. stocks based on expectations of resilient earnings in the third quarter.
On Monday, Savita Subramanian, an equity and quantitative strategy analyst at Bank of America,
stated that heightened short-, medium-, and long-term volatility
would make investment-grade stocks and yields more attractive than their growth counterparts.
She added, “Better the tortoise (quality and yields) than the hare (growth and revaluation),”
noting that utility stock yields equate to Nasdaq yields “over the long term.”
She also mentioned that utilities have outperformed technology stocks this year.
According to Citigroup strategists, last week’s sell-off
in U.S. stocks made the main indices more vulnerable to further declines.
A team led by Chris Montagu said that the broad-based stock sell-off,
especially in the S&P 500 index, signals a shift in risk appetite towards a more directly negative tilt.
The strategists noted that the closing of buy-and-sell operations
by hedge funds in the index left total investment exposure at half its previous peak in mid-July.
Hedge funds continued to reduce their positions in U.S. stocks,
with the S&P 500 experiencing its biggest weekly decline since March 2023.
Global Stock Sell-Off
Global stocks saw net sales for the eighth consecutive week, led by North America,
according to a report from Goldman Sachs Group’s prime brokerage desk for the week ending September 6.
This trend, which broadly began in May, has continued as funds liquidated positions
significantly to gain additional liquidity in anticipation of potential volatility surrounding the U.S. presidential elections.
Konstantinos Venetis of TS Lombard stated, “Slowdowns do not necessarily mean a recession,
and market corrections are not necessarily harbingers of a bear market.”
He added, “But increasing uncertainty on both the economic (growth)
and political (U.S. elections) fronts put additional pressure on near-term optimists.”
Venetis pointed out that while the U.S. Federal Reserve is ready to cut rates,
the question remains whether “precautionary cuts” will be too limited and too late.
He added, “The risk is that growth concerns gain their own momentum,
putting more pressure on the stock market, which already appears technically weak.”
The Role of Soft and Hard Landing
Seema Shah of Principal Asset Management believes that history indicates
the Fed’s success in achieving a soft landing versus a hard landing,
which will play a crucial role in determining the course of U.S. stocks.
For example, in 1985 and 1995, rate cuts supported strong stock gains while avoiding a recession.
In contrast, in 2001 and 2007, even aggressive easing was not enough
to prevent severe market declines amid economic slowdowns.
Shah said, “Today, markets remain cautiously optimistic,
reflecting hopes that rate cuts will avoid a recession.”
However, she warned, “If economic conditions deteriorate sharply,
recession fears could outweigh the benefits of rate cuts.
History shows that rate cuts are not the enemy themselves;
investors should focus on the economic context in which they occur.”
Anticipation of the Consumer Price Index Report
According to economists surveyed by Bloomberg,
a government report expected on Wednesday will show that the Consumer Price Index (CPI)
rose by 2.6% in August compared to the previous year.
This would be the lowest increase since 2021.
Under the traditional blackout period before the September 17-18 meeting,
Fed officials will not provide significant new guidance.
Chris Low of FHN Financial stated, “Inflation is important.”
He added, “Weaker numbers might encourage the Fed to cut rates by half a percentage point,
while any higher figures could limit the rate cut to a quarter point.
However, even if inflation moderates and prompts some participants to push for a larger cut,
we expect the Fed to settle on a quarter-point cut as an initial step,
with the option to move faster in future meetings if the data supports it.”
U.S. Stocks Rise Amid a Buying Frenzy After a Sell-Off