US stocks trimmed earlier gains after a slew of data pointed to a resilient economy, adding to evidence that the Federal Reserve will remain restrictive for longer than previously expected.
(Bloomberg) — US stocks trimmed earlier gains after a slew of data pointed to a resilient economy, adding to evidence that the Federal Reserve will remain restrictive for longer than previously expected.
The S&P 500 and the Nasdaq 100 still remained firmly in the green on Monday after a dismal week. But those gains were slightly dented after Fed Governor Philip Jefferson firmly stood by the central bank’s 2% inflation goal. The US 10-year Treasury yield hovered around 3.93%. A dollar index dropped.
The fresh US economic data that investors are parsing on Monday point to an economy that remains robust despite the Fed’s persistent rate hikes. US pending home sales rose last month by the most since June 2020, which could keep pressure on the Fed to stay hawkish.
Meanwhile, orders for durable goods fell, in their steepest decline since April 2020, underscoring a pullback in bookings for commercial aircraft. But excluding transportation equipment, durable goods orders rose more than expected. Orders placed with US factories for business equipment also rose in January as companies continued to make longer-term capital investments despite uncertainty about where the economy is headed.
“We have had a bit of a repricing in markets in February where there is more concern that central banks will have more work to do,” Sam Lynton-Brown, global head of macro strategy at BNP Paribas, said on Bloomberg Television. “The view we have is that there’s still some further room to run on that repricing. So either equities are at risk to come lower or rates are at risk to head higher.”
In the near-term, both scenarios could play out if the markets price in a more hawkish policy outlook for the Fed, he said.
For now, a more optimistic outlook for earnings estimates is helping ease fears that inflation will remain entrenched even as growth slows, drawing investors back to stocks. Those treading into this market risk are falling into a “bull trap” according to Michael Wilson, chief US equity strategist at Morgan Stanley. That view was echoed by Torsten Slok, chief economist at Apollo Global Management.
“A generation of investors has since 2008 been taught that they should buy on dips, but today is different because of high inflation, and credit markets and equity markets are underestimating the Fed’s commitment to getting inflation down to 2%,” Slok wrote in a note.
The sanguine mood took a knock last week as the Fed’s preferred inflation gauge accelerated and dashed hopes for a policy pivot. Traders are now pricing US rates to peak at 5.4% this year, compared with about 5% just a month ago.
Read More: US Business Equipment Orders Increase by the Most in Five Months
Key events this week:
- US wholesale inventories, Conf. Board consumer confidence, Tuesday
- China manufacturing PMI, non-manufacturing PMI, Caixin manufacturing PMI, Wednesday
- Eurozone S&P Global Eurozone Manufacturing PMI, Wednesday
- US construction spending, ISM Manufacturing, light vehicle sales, Wednesday
- Eurozone CPI, unemployment, Thursday
- US initial jobless claims, Thursday
- Eurozone S&P Global Eurozone Services PMI, PPI, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.5% as of 11:30 a.m. New York time
- The Nasdaq 100 rose 0.9%
- The Dow Jones Industrial Average rose 0.3%
- The Stoxx Europe 600 rose 1.1%
- The MSCI World index fell 1.2%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.4% to $1.0588
- The British pound rose 0.7% to $1.2024
- The Japanese yen rose 0.2% to 136.27 per dollar
Cryptocurrencies
- Bitcoin fell 1% to $23,334.16
- Ether fell 0.4% to $1,636.6
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.93%
- Germany’s 10-year yield advanced five basis points to 2.59%
- Britain’s 10-year yield advanced 16 basis points to 3.82%
Commodities
- West Texas Intermediate crude fell 0.5% to $75.92 a barrel
- Gold futures rose 0.2% to $1,820.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Alice Atkins, Cecile Gutscher and Isabelle Lee.
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