Stocks are finding some favor in the final days of their worst first half start in 50 years, but recession, rate and inflation concerns continue to cap gains.
U.S. equity futures bumped higher Monday, extending a modest rally on Wall Street that has lifted stocks higher in the face of persistent recession concerns heading into the final trading days of the first half of the year.
The S&P 500 has risen by around 6.7% since bottoming out early last week, taking the broadest benchmark of U.S. stocks back towards the 4,000 point mark as investors quietly ease back into global risk markets while eyeing the prospects of slower growth, faster inflation and central bank responses to both.
The so-called bear market rally has yet to gain full conviction on Wall Street, however, as stock funds saw their biggest outflow in nine weeks last week, according to data from the Bank of America “Flow Show” report, while Treasury bond yields continue to flash recession warnings heading into the final trading days of the the worst first half performance for stocks in five decades.
The yield gap between 10-year Treasury bonds and 2-year notes is now hovering at around 9 basis points, modestly wider than last week but still close enough to the inversion level that traders cite as a signal for near-term recession.
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Growth prospects were clipped overnight, as well, by a weaker-than-expected reading for profits generated by China’s biggest industrial firms last month, which fell 6.5% from last year despite a rebound in activity from the country’s Covid restrictions.
The Federal Reserve’s inflation fight will likely resume its place at the forefront of Wall Street’s focus this week, as well, as the PCE Price Index, is likely to show a modest deceleration of inflation pressures when data from the Fed’s preferred gauge is published on Thursday.
At present, the CME Group’s FedWatch tool is already indicating some pullback on bets for faster rate hikes, although a 75 basis point move in July is essentially priced-in by Wall Street.
Still, global equity benchmarks are moving higher again Monday, with Europe’s region-wide Stoxx 600 marked 0.67% into the green in early Frankfurt trading while Asia’s MSCI ex-Japan benchmark gained 1.75%.
On Wall Street, futures tied to the Dow Jones Industrial Average are indicating a 125 point opening bell gain while those linked the S&P 500, which is down 18% for the year, are priced for a 21 point gain. Futures linked to the tech-focused Nasdaq are looking at an 80 point opening bell gain.
In other markets, oil prices traded modestly higher overnight following reports that the so-called G-7, a collective of the seven richest western democracies as well as Japan, are reportedly nearing an agreement to place a cap on the price of crude exports from Russia.
WTI crude futures for August delivery were marked 41 cents higher on the session at $108.05 each while Brent contracts for the same month, the global pricing benchmark, added 65 cents to trade at $113.77 per barrel.
Nike (NKE) – Get Nike Inc. Report shares 1% higher ahead of the sports apparel group’s fourth quarter earnings after the close of trading.
Nike is expected to post earnings of 81 cents per share, down from 93 cents over the same period last year, on revenues of around $12.075 billion.
Digital World Acquisition Corp. (DWAC) , the bank-check company planning to merger with former President Donald Trump’s nascent media company, fell 6.5% after it said that its directors have been subpoenaed by a Federal Grand Jury.
DWAC, which is also being investigated by the U.S. Securities and Exchange Commission with respect to its plans to merge with the former President’s Trump Media & Technology Group, said the subpoenas were related to the SEC probe and issued by a panel sitting in the Southern District of New York.
