Stocks Hit New Highs as Weak Data Sinks US Yields: Markets Wrap

(Bloomberg) — Wall Street traders boosted stocks as bond yields fell after a series of weaker-than-expected economic reports bolstered the case for the Federal Reserve to start cutting rates this year.

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In a shorter session ahead of the U.S. holiday, the S&P 500 hit an all-time high on bets that lower rates will continue to fuel Corporate America. Treasuries edged higher across the curve. The dollar remained lower after minutes from the Fed’s June policy meeting showed officials were waiting for evidence that inflation was cooling and were divided over how long to keep rates high.

For Paul Ashworth of Capital Economics, the Fed minutes “look dated” given subsequent signs of an economic slowdown. Michael Feroli of JPMorgan Chase & Co. said the minutes “skew dovish.” There was broad agreement that disinflationary pressures are prevalent, that the labor market is becoming less tight and that economic growth should continue to moderate, he noted.

In the run-up to Friday’s jobs report, data showed the services sector contracted at its fastest pace in four years, while the labor market showed further signs of cooling.

“Bad news is good news,” said Fawad Razaqzada at City Index and Forex.com. “That’s how risk assets reacted after today’s U.S. data releases.”

Investors continued to keep a close eye on political developments, with Joe Biden struggling to stave off pressure to abandon his re-election bid. Donald Trump’s lead over Biden grew in two key post-debate polls.

The S&P 500 topped 5,535, marking its 33rd record high in 2024. Tesla Inc. extended its rally to a seventh straight session, leading gains in megacaps — though Amazon.com Inc. fell. Yields on the 10-year Treasury fell seven basis points to 4.36%. The dollar fell.

“Clouds are gathering on the macro backdrop, but investors’ glass-is-half-full mentality continues to drive markets higher,” said Nationwide’s Mark Hackett.

At Brown Brothers Harriman & Co., Win Thin and Elias Haddad noted that if the data cooperates, a Fed cut in September is “very much in play.” Swap traders are projecting nearly two rate cuts in 2024, with the first in November — though bets on a September reduction have increased.

Economists forecast a gain of 190,000 in June nonfarm payrolls — a drop from the previous month — with the unemployment rate holding steady at 4%.

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“Given other evidence of a cooling economic outlook, the payrolls report could be increasingly decisive for the Fed as it seeks justification to signal a rate easing,” said Quincy Krosby of LPL Financial.

A survey conducted by 22V Research shows that 40% of investors think the market’s reaction to Friday’s jobs data will be “insignificant/mixed,” 34% said “risk on” and 26% “risk on.”

“Investors are paying more attention to payrolls,” said Dennis DeBusschere at 22V. “The focus on wage growth has dropped a bit.”

The 22V survey also showed that there is a “positive bias” in unemployment rate assumptions.

Fed Chairman Jerome Powell said Tuesday that the latest economic data suggests inflation is returning to a downward path, but stressed that officials need more evidence before cutting interest rates. When 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.

“Until employment weakens significantly, there remains fundamental support for the U.S. economy, although there is some evidence of a slowdown,” said Don Rissmiller at Strategas. “Fed officials have indicated they want to see more progress on inflation — fortunately, the U.S. economy still looks robust enough currently to take an extended pause on rates. But the clock is ticking.”

Meanwhile, New York Fed Bank President John Williams, who has researched the natural interest rate known as r-star in depth, pushed back against recent comments that it has risen since the pandemic.

The idea of ​​a natural long-term interest rate, which prevails when the economy is not responding to shocks and is growing at its potential, is central to monetary policy but cannot be directly observed. Authorities aim to raise rates above the neutral level to cool the economy and combat inflation.

Corporate Highlights:

• Novo Nordisk A/S’s top-selling diabetes and weight-loss drugs, Ozempic and Wegovy, appear to be linked to 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 has taken a leap forward after a merger deal with independent film and TV producer Skydance Media was revived.

• Nvidia Corp. Chief Executive Officer Jensen Huang sold nearly $169 million worth of stock in June, the most he has raised in a single month, as insatiable demand for the chips used to power artificial intelligence drove 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.

• Lyft Inc., which operates the popular Citi Bike program, said it will raise rental rates for electric bikes in New York City by 20%, blaming higher-than-expected operating costs.

• Sales of Ford Motor Co.’s F-Series pickup truck fell in the second quarter as the automaker slowly rolls out a new design 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 push for a leadership overhaul by activist firm Elliott Investment Management.

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

Main events of this week:

• UK General Election, Thursday

• US Independence Day Holiday, Thursday

• Eurozone retail sales, Friday

• US jobs report, Friday

• Fed’s John Williams speaks Friday

Some of the main movements in the markets:

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Coins

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.4% to $1.0785

• The British pound rose 0.4% to $1.2740

• The Japanese yen fell 0.2% to 161.72 per dollar

Cryptocurrencies

• Bitcoin fell 3.6% to $59,706.51

• Ether fell 4.2% to $3,272.14

Titles

• The yield on the 10-year Treasury note fell seven basis points to 4.36%

• The yield on German 10-year bonds fell two basis points to 2.59%

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

Commodities

• West Texas Intermediate crude 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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