Stocks hit new highs as weak data pushes US yields lower: Market recap

(Bloomberg) — Wall Street traders pushed stocks higher as bond yields fell after a string of weaker-than-expected economic reports strengthened the case for the Federal Reserve to cut rates this year.

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In a shortened session ahead of the U.S. holiday, the S&P 500 hit an all-time high as low rates continued to support U.S. businesses. Treasuries climbed across the curve. The dollar remained lower after minutes from the Fed’s June policy meeting showed policymakers were waiting for evidence of slowing inflation and were divided over how long rates should be kept high.

Paul Ashworth of Capital Economics said the Fed’s minutes looked dated given subsequent signs of economic slowdown. Michael Feroli of JPMorgan Chase & Co. said the minutes were fairly dovish. He noted there was broad agreement that disinflationary pressures are widespread, the labor market is becoming less tight and economic growth is likely to continue to slow.

Ahead of Friday's jobs report, data showed the services sector contracted at the fastest pace in four years, while the labor market showed further signs of cooling.

Bad news is good news, said Fawad Razaqzada of City Index and Forex.com, which is how risk assets reacted following today's US data release.

Investors continued to closely monitor political developments as Joe Biden struggled to contain pressure to abandon his re-election bid. Donald Trump's lead over Biden widened in two key post-debate polls.

The S&P 500 index topped 5,535 points, setting its 33rd record of 2024. Tesla Inc. extended its rally for a seventh straight session, leading gains among megacaps, though Amazon.com Inc. fell. Yields on 10-year Treasury notes fell seven basis points to 4.36%. The dollar slipped.

Clouds are forming in the macroeconomic landscape, but investors' glass-half-full mindset continues to drive markets higher, Nationwide's Mark Hackett said.

At Brown Brothers Harriman & Co., Win Thin and Elias Haddad noted that if the data are consistent, a September Fed rate cut is a given. Swaps traders are pricing in nearly two rate cuts in 2024, the first in November, though bets on a September cut have increased.

Economists forecast nonfarm payrolls to increase by 190,000 in June, down from the previous month, with the unemployment rate holding at 4%.

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Given other signs of an economic slowdown, the jobs report could be increasingly decisive for the Fed as it seeks justification to signal rate easing, said Quincy Krosby of LPL Financial.

A survey by 22V Research shows that 40% of investors believe the market reaction to Friday's jobs data will be negligible/mixed, with 34% saying they are risk-on and 26% saying they are risk-off.

Investors are paying close attention to wages, said Dennis DeBusschere of 22V. The focus on wage growth has waned somewhat.

The 22V survey also showed that assumptions about the unemployment rate were biased upwards.

Fed Chairman Jerome Powell said Tuesday that the latest economic data suggested inflation was back on a downward trajectory, but stressed that policymakers needed more evidence before cutting interest rates. Asked what keeps him up at night, he pointed to the delicate balance between taming inflation and avoiding a significant deterioration in the labor market.

As long as employment doesn’t weaken significantly, the U.S. economy continues to have fundamental support, even if there are some signs of slowdown, said Don Rissmiller of Strategas. Fed policymakers have indicated they want to see more progress on inflation. Fortunately, the U.S. economy still appears robust enough to support an extended pause in interest rates. But time is running out.

Meanwhile, New York Fed President John Williams, who has extensively studied the natural rate of interest known as the r-star, dismissed recent comments that the rate has risen since the pandemic.

The idea of ​​a long-term natural interest rate, which prevails when the economy is unresponsive to shocks and growing at its potential, is central to monetary policy but cannot be directly observed. Policymakers seek to raise rates above the neutral level to calm the economy and fight inflation.

Company Highlights:

Novo Nordisk A/S's top-selling diabetes and weight-loss drugs, Ozempic and Wegovy, appear to be associated with a higher risk of a rare form of vision loss, according to an analysis by doctors at Massachusetts Eye and Ear, a Harvard-affiliated hospital.

Paramount Global jumped after reviving a merger deal with independent film and television producer Skydance Media.

Nvidia Corp. CEO Jensen Huang sold nearly $169 million worth of shares in June, the most he's raised in a single month, as insatiable demand for chips used to power artificial intelligence pushed the stock to new highs.

Jeff Bezos unveiled a plan to sell an additional 25 million shares of Amazon.com Inc., worth $5 billion, on the day the stock hit a new record high.

Lyft Inc., which operates the popular Citi Bike program, said it would raise rates for electric bike rentals in New York City by 20%, citing higher-than-expected operating costs.

Sales of Ford Motor Co.'s F-Series pickup trucks fell in the second quarter as the automaker phased in a redesign of its best-selling model to avoid quality problems and recalls.

Southwest Airlines Co. has adopted a shareholder rights plan to defend itself against a management overhaul attempt by activist firm Elliott Investment Management.

LL Flooring Holdings Inc. is considering filing for Chapter 11 bankruptcy, according to people familiar with the matter who asked not to be named to discuss private deliberations.

Main events of the week:

UK General Election, Thursday

United States Independence Day holiday, Thursday

Eurozone retail sales, Friday

US jobs report, Friday

Federal Government Member John Williams Speaks Friday

Some of the main movements in the markets:

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Currencies

The Bloomberg Dollar Spot Index fell 0.2%

The euro rose 0.4% to $1.0785

The pound rose 0.4% to $1.2740

The Japanese yen fell 0.2 percent to 161.72 per dollar.

Cryptocurrencies

Bitcoin fell 3.6% to $59,706.51

Ether fell 4.2% to $3,272.14

Obligations

The yield on 10-year Treasury notes fell seven basis points to 4.36%

Germany's 10-year yield fell two basis points to 2.59%

The UK 10-year yield fell eight basis points to 4.17%

Raw materials

West Texas Intermediate crude oil rose 1.1% to $83.72 a barrel

Spot gold rose 1.1% to $2,354.66 an ounce

This story was produced with assistance from Bloomberg Automation.

–With assistance from John Viljoen, Sujata Rao and Winnie Hsu.

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