Wall Street on Hold in Countdown to Key CPI Print: Markets Wrap - Yahoo Finance

(Bloomberg) -- Stocks, bonds and the dollar saw small moves on Monday, with traders awaiting the latest inflation figures, remarks from Federal Reserve speakers and results from giant retailers.

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The S&P 500 fluctuated near its key 4,400 mark. The gauge had posted nine positive days out of 10 — a level of consistency seen less than 1% of the time this century and last observed in 2021. Treasury 10-year yields dropped below 4.65%. The dollar fell, while the yen briefly rose on speculation Japanese authorities had stepped in to support the currency. Oil climbed to $78.

A week jam-packed with economic data will help shape the direction of markets after a rally driven by bets interest rates are peaking. With the Fed considered by many to remain on “pause” or “skip” mode for longer, but not likely to cut rates anytime soon, markets will possibly remain “vulnerable to outbreaks of volatility,” according to John Stoltzfus at Oppenheimer Asset Management.

“This week has enough high-profile economic data to tilt the market either way,” said Chris Larkin at E*Trade from Morgan Stanley. “Most eyes will be focused on the latest inflation numbers, but retail sales and retail earnings will also help set the tone.”

In the run-up to the consumer-price index report, a survey conducted by 22V Research shows the majority of investors don’t think the inflation measure is on a “Fed-friendly path.” Among those polled, 36% are betting the market reaction will be “risk-off” while 31% see a “risk-on” reaction.

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Economists surveyed by Bloomberg expect the data to show CPI slowed to an annual rate of 3.3% in October from 3.7% in September.

“The big event of this week will be tomorrow’s US CPI release,” said Jim Reid at Deutsche Bank AG. “The consensus suggests that the Fed have pretty much won the battle on inflation, and markets have certainly got very excited about a potential dovish pivot. But this is far from the first time that hopes for a dovish pivot have caused excitement, and if core is sticky around 3% then there’s little doubt that the Fed will look to tighten policy again.”

Traders betting interest rates are peaking drove the S&P 500 to an almost two-month high last week. In a survey from the American Association of Individual Investors, the proportion of respondents who say they’re optimistic on the stock market jumped by three-quarters, while the ranks of pessimists has plunged. From one weak to the next, the bull-bear spread rose by 41 points, an advance last seen in early 2009.

‘Healthy’ Breather

To Matt Maley at Miller Tabak + Co., it would actually be “healthy” if stocks took a breather. Given that many of the big-tech names have gotten “expensive” once again, a rally in a straight line could take away from some of the potential gains in December.

“We were and remain of the opinion that a bear rally would reverse at 4,435,” said JC O’Hara, chief market technician at Roth MKM. “Conversely, a sustained close above that level will indicate that the bulls oversee the market. Overall, plenty of the market’s internals have improved to neutral out of negative, but there are not many positives we can point to. Not enough good, but also not enough bad.”

Meantime, a crack in the issuance window propelled Wall Street to its busiest week of the year for follow-on share sales. For some analysts, this shouldn’t be taken necessarily as a sign of momentum in the stock market. Companies were exiting blackout periods after their latest quarterly earnings, meaning they were free to launch follow-on offerings.

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Strategists at Morgan Stanley expect the yield on 10-year Treasuries to fall below 4% by the end of next year due to a mixture of slowing growth and inflation, alongside the return of bond buyers and rate cuts from the Fed.

Treasury bulls are still prevailing in the latest MLIV Pulse survey, but their majority is getting extremely slim. Those expecting 10-year yields to go down over the next month represented 51% of respondents, a decline from 52% a month earlier, and the peak of 54% in July.

Valuable Hedge

Overall, majority of 506 survey respondents pointed to bonds as a valuable hedge to stocks volatility, and expressed concerns about the US economy, seeing it heading toward recession.

Investors are certain of at least one interest rate cut by the year-end 2024, so any deviation from those expectations could take stocks down again, according to Paul Nolte at Murphy & Sylvest Wealth Management.

“Investors and presumably the Fed will be watching the inflation data very closely when it is released, however as mentioned above, retail sales may be THE release of the week,” Nolte added. “Retail sales, due on Wednesday, could shed some light on the consumer’s cheeriness heading into the holiday season.”

Walmart Inc. and Target Corp. will provide insights into how much consumers have reined in discretionary spending when they report earnings this week, including a glimpse into shopping patterns ahead of the vital holiday season.

Elevated mortgage rates and record-high home prices are poised to put an end to the home-improvement spending boom that drove growth at Home Depot Inc. and Lowe’s Cos. over the pandemic period.

Wall Street is also keeping a close eye on Washington negotiations to avert a US government shutdown at the end of this week, an event that would threaten the loss of the nation’s last top credit rating after Moody’s Investors Service signaled Friday it was inclined to issue a downgrade amid wider budget deficits and political polarization.

The US fiscal position is on an “unsustainable trajectory” due to a lack of political will to resolve the crisis at a time when debt costs are soaring, former Fed Bank of New York President Bill Dudley said.

Corporate Highlights:

Nvidia Corp., the world’s most valuable chipmaker, is updating its H100 artificial intelligence processor, adding more capabilities to a product that has fueled its dominance in the AI computing market.
Boeing Co. opened the Dubai Airshow with a flurry of orders led by a whopping $52 billion widebody commitment from Emirates Airline, while teasing the possibility of more as China moves closer to a deal for the 737 Max.
Tyson Foods Inc. wrote down the value of its investments in beef as US meat producers struggle with a challenging economic backdrop, tighter cattle supplies and higher costs.
HP Inc. was upgraded to buy from neutral at Citigroup Inc., which said a better environment for personal computer demand is set to boost free cash flow generation.
Novo Nordisk A/S’s key study backed the use of Wegovy, its blockbuster weight-loss drug, to cut heart attacks and deaths in people with obesity and a history of cardiac disease.
Exxon Mobil Corp. plans to become one of the biggest suppliers of lithium for electric vehicles, marking the oil giant’s first major foray outside of fossil fuels in decades.
Google pays Apple Inc. 36% of the revenue it earns from search advertising made through the Safari browser, the main economics expert for the Alphabet Inc. unit said Monday.

Key events this week:

Germany ZEW survey expectations, Tuesday
UK jobless claims, Tuesday
US CPI, Tuesday
Home Depot earnings, Tuesday
Fed Vice Chair Philip Jefferson, SNB President Thomas Jordan and ECB chief economist Philip Lane speak during conference in Zurich. Tuesday-Wednesday.
Chicago Fed President Austan Goolsbee speaks, Tuesday
Bank of England chief economist Huw Pill speak during event, Tuesday.
China retail sales, industrial production, fixed-asset investment, Wednesday
Japan GDP, industrial production, Wednesday
UK CPI, Wednesday
US retail sales, business inventories, PPI, Empire manufacturing, Wednesday
Target earnings, Wednesday
China new home prices, Thursday
US initial jobless claims, industrial production, Thursday
Walmart earnings, Thursday
US President Joe Biden and Chinese President Xi Jinping expected to speak at APEC leaders summit, Thursday
Cleveland Fed President Loretta Mester, New York Fed President John Williams and Fed vice chair for supervision Michael Barr speak, Thursday
Bank of England deputy governor Dave Ramsden and ECB President Christine Lagarde speak at event, Thursday
US housing starts, Friday
US Congress faces a midnight deadline to pass a federal spending measure, Friday
ECB President Christine Lagarde speaks, Friday
Chicago Fed President Austan Goolsbee, Boston Fed President Susan Collins and San Francisco Fed President Mary Daly speak, Friday