Stocks trimmed losses as dip buyers emerged following a slide driven by worries about the financial system and the economy. Bonds rose.
(Bloomberg) — Stocks trimmed losses as dip buyers emerged following a slide driven by worries about the financial system and the economy. Bonds rose.
Equity declines waned in afternoon New York trading, with the S&P 500 finishing down by 0.4%. Apple Inc. halted its longest losing streak this year. Eli Lilly & Co. led gains in health-care companies after sales of its weight-loss treatment blew past expectations and a new study raised the prospect that its drug could benefit heart disease as well. Banks fell as Moody’s Investors Service downgraded 10 small and midsize American lenders and said it may do the same with a handful of major firms.
The recent “orderly” pullback in US stocks has reduced the risk of a chaotic selloff and reduced some of the short-term positioning risk that has been a worry for investors, according to Chris Montagu, a strategist at Citigroup Inc.
“This puts markets in a good set-up to make new gains or weather negative news/shocks in the coming weeks,” Montagu added.
Deutsche Bank AG’s Bankim Chadha noted that while he’s sticking with his call for the S&P 500 to close the year around 4,500 — roughly where it currently is — he expects the gauge to push on toward 5,000 if the Federal Reserve can bring inflation down without triggering a recession.
Treasury 10-year yields dropped to around 4%. Tuesday’s $42 billion sale of three-year notes produced a lower-than-expected yield, a sign that demand was stronger than anticipated. The dollar rose. Oil rebounded after Ukrainian President Volodymyr Zelenskiy said his country would retaliate if Russia continues to block its ports. Copper — a barometer of the global economy — slid on disappointing Chinese trade figures.
Just a few days before a key inflation report, investors also waded through remarks from central bank officials.
Fed Bank of Philadelphia President Patrick Harker said the central bank may be able to cease rate hikes, barring any surprises in the economy, though rates would need to stay at their current elevated levels for some time. Harker also noted that “sometime probably next year, we’ll start to bring the interest rates down.” His Richmond counterpart Thomas Barkin argued it was too soon to say whether another an increase in September would be appropriate.
To David Spika at GuideStone Capital Management, the restrictive policy imposed by the Fed will lead to economic weakness and a correction in equities. He noted that the market remains at a valuation “that just doesn’t make sense relative to where we are.”
We’re “in between the inflation spikes and the Fed hikes, but also waiting for the economy and profits to sour,” Meera Pandit at JPMorgan Asset Management told Bloomberg Television. “So I don’t know that there is a whole lot of upside catalyst in a world where profits are just better than feared, we need to see some more out of the profits landscape in order to get some more upside out of stocks that have already rallied really hard.”
Sentiment recently hit the highest levels since the start of the year — a short-term bearish sign that has historically signaled a mild decline stocks.
The Bloomberg Intelligence Market Pulse Index, which acts as a contrarian signal, pushed into manic territory in July following three consecutive months in a neutral range. It’s a rare sign that has typically delivered weaker US equity returns over the next three months, with small caps underperforming their larger counterparts, data compiled by BI show.
“We still believe that stocks in general are prone to pullbacks in the magnitude of 5%-10% off the recent highs as we move through the second half of 2023,” said Dan Wantrobski at Janney Montgomery Scott. “Selling pressures will continually push the charts into oversold territory frequently, so be on alert for potentially powerful counter-trend moves in sessions ahead.”
After the Closing Bell:
- Walt Disney Co.’s ESPN has signed a long-term exclusive partnership for sports betting with Penn Entertainment Inc., a regional casino operator.
- WeWork Inc. said there’s “substantial doubt” about its ability to continue operating, citing sustained losses and canceled memberships to its office spaces.
- Take-Two Interactive Software Inc., the company behind video games like Grand Theft Auto, rose after management predicted a big 2024, overshadowing lower-than-expected results for the latest quarter.
- Lyft Inc. fell after the company reported its slowest revenue growth in two years, overshadowing a better-than-expected outlook for earnings.
- Marathon Digital Holdings Inc.’s second-quarter loss narrowed and revenue jumped as the Bitcoin miner increased sales of the cryptocurrency in the aftermath of a rebound in prices.
- Twilio Inc. rose after the software company raised its profit outlook for the year and reported quarterly sales and profit that topped analysts’ estimates.
Key events this week:
- China CPI, PPI, money supply, new yuan loans and aggregate financing, Wednesday
- India rate decision, Thursday
- US initial jobless claims, CPI, Thursday
- Atlanta Fed President Raphael Bostic pre-recorded remarks for employment webinar, Thursday
- UK industrial production, GDP, Friday
- US University of Michigan consumer sentiment, PPI, Friday
Some of the main moves in markets:
- The S&P 500 fell 0.4% as of 4 p.m. New York time
- The Nasdaq 100 fell 0.9%
- The Dow Jones Industrial Average fell 0.4%
- The MSCI World index fell 0.6%
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.4% to $1.0958
- The British pound fell 0.3% to $1.2746
- The Japanese yen fell 0.7% to 143.43 per dollar
- Bitcoin rose 2.6% to $29,903.83
- Ether rose 1.9% to $1,859.69
- The yield on 10-year Treasuries declined seven basis points to 4.02%
- Germany’s 10-year yield declined 13 basis points to 2.47%
- Britain’s 10-year yield declined eight basis points to 4.39%
- West Texas Intermediate crude rose 1.1% to $82.84 a barrel
- Gold futures fell 0.5% to $1,959.40 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott, Tassia Sipahutar, Cecile Gutscher, Emily Graffeo, Vildana Hajric, Isabelle Lee and Sagarika Jaisinghani.
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