Stocks rose solidly at the start of trading Monday, as investors attempted to bounce back from the previous week’s steep losses, ahead of another heavy week of quarterly corporate results.
What are major benchmarks doing?
The Dow Jones Industrial Average
DJIA, +0.50%
traded 273 points, or 1.1%, to 24,960, while the S&P 500 index
SPX, +0.78%
rose 36 points, or 1.3%, to 2,694. The Nasdaq Composite
COMP, +0.12%
ose 73 points, or 1%, to 7,240.
Last week saw the S&P 500 drop 3.9% to end Friday at 2,658.69, with the index 7.6% lower in the month-to-date, while the Dow dropped 3% last week to 24,688.31; it’s 6% lower for the month. Last week’s carnage saw both the S&P and Dow turn negative for the year, though Monday morning trade has pushed both indexes slightly positive year-to-date.
The tech-heavy Nasdaq Composite led the way lower for major indexes last week, dropping 3.8% and falling into correction territory, defined as a pullback of 10% or more from a recent peak. The index is down 10% during October.
What’s driving the market?
Analysts are attributing the stock market’s weakness in October to a variety of factors, including concerns about global and domestic growth prospects, worries that U.S. corporate earnings growth has peaked, and fears of a U.S. monetary policy misstep by the Federal Reserve.
Earnings season has seen companies continue to beat earnings and sales expectations, but analysts said weak outlooks from some companies may have undercut performance. Through Friday, 240 S&P 500 companies had reported quarterly results, with 81% topping expectations, according to Jefferies.
A Bloomberg report that China is considering cutting a tax on most cars in half was also credited with providing a lift to global equities in general and shares of auto makers in particular.
What are analysts saying?
Michael Arone, chief investment strategist at State Street Global Advisors, argued that Monday morning’s rally is due to economic data indicating that “inflation is slower than we thought,” including a print of the PCE inflation index showing that yearly price growth fell from August to September. “This has investors optimistic that the Fed won’t raise rates as aggressively next year as they have been signaling,” he told MarketWatch.
However, “It’s a little too early to call the ‘all clear,’” Arone warned. “Macros issues will continue to pose challenges to stocks over the next few weeks. It would be helpful if we continue to get some data that justifies the decline in rate-hike expectations, or some news that shows thawing in the U.S-China trade conflict.”
Last week’s selloff “appears to have overshot the fundamentals. We expect continued positive economic data and prospective EPS (earnings per share growth) to support an S&P 500 rebound to our year-end target of 2,850,” wrote analysts led by David Kostin at Goldman Sachs, in a note.
“U.S. futures were under pressure earlier,” Dave Lutz, head of ETFs for JonesTrading, wrote in a note to clients, attributing the weakness to investor skepticism of IBM’s acquisition of Red Hat Inc. “But we have seen a sharp reversal as headlines rolled indicating that China is slashing their auto taxes in half,” he wrote.
What stocks are in focus?
Shares of Red Hat Inc.
RHT, +42.63%
jumped 47% in trade Thursday after International Business Machines Corp.
IBM, -2.49%
said it would acquire the open-source software company for $190 a share in a cash deal. Shares of IBM were off 3.2%.
Northrop Grumman
NOC, -2.29%
on Monday announced a $1 billion accelerated stock repurchase agreement with Goldman Sachs & Co.
GS, +2.00%
Nevertheless, shares in the defense contractor were down 1.5%
Shares of Ford Motor Co.
F, +4.29%
rose 5.7% in Monday morning trade following the report on China’s potential car-tax cut. General Motors Company
GM, +3.22%
stock was also buoyed by the news, up 3.7%. Ford was also boosted after Goldman Sachs raised its rating on the stock to buy from neutral, where it had been since July 2016, and lifted its price target to $12 a share, up 34% from Friday’s close.
Also boosted by the report on Chinese auto tariffs was Goodyear Tire and Rubber Company ,
GT, +5.48%
up 6.3 % during trade Monday, and many auto parts suppliers, led by Adient PLC
ADNT, +7.65%
and Aptive PLC
APTV, +4.81%
, also benefited after Baird upgraded the sector on the news.
First Data Corp.
FDC, -14.10%
shares fell sharply Monday, down 11.9%, after the company reduced guidance for full-year 2018 revenue.
Micron Technology, Inc.
MU, +0.45%
stock is up 1% Monday, after shares in the company fell a steep 12.5% last week.
Shares in Visa
V, -0.18%
are also staging a relief rally, up 1.2%, after being one of the Dow’s top losers last week.
Take Two Interactive Software
TTWO, -5.28%
is a leading loser among S&P 500 companies, down 3.23% after weekend U.K. sales numbers of its flagship game, Red Dead Redemption 2, failed to wow investors.
Only a handful of companies will report Monday, but investors will be keeping an eye on Mondelez International Inc.
MDLZ, +1.00%
, which will announce earnings after the close.
What data are in focus?
Consumer spending rose 0.4% in September, the government reported Monday, matching the MarketWatch forecast. Incomes rose a smaller 0.2%, the smallest rise in 13 months, while inflationary pressures appeared to slacken. The personal-consumption expenditures inflation index, the Federal Reserve’s favorite price gauge, rose 0.1% in September, while the 12-month rate slipped to 2% from 2.2%.
Chicago Federal Reserve Bank President Charles Evans spoke Monday morning, though he did not address monetary policy or the U.S. economic outlook. His was the last scheduled speech before a blackout period leading up to the central bank’s Nov. 8 meeting, during which Fed officials are barred from commenting publicly.
How are other markets trading?
Asian markets were down on the day, as the Shanghai Composite Index
SHCOMP, -2.18%
Shenzhen Composite Index
399106, -2.02%
and Nikkei 225
NIK, -0.16%
all fell on concerns over U.S.-China trade relations.
European stocks were surging, with the The Stoxx Europe 600
SXXP, +0.90%
and U.K. FTSE 100
UKX, +1.25%
up more than 1.5% during Monday trading.
Oil futures
CLZ8, -0.62%
slipped Monday, following three weeks of declines. Gold
GCZ8, -0.58%
also pulled back, while the U.S. dollar
DXY, +0.27%
edged up slightly.
Source : MTV
