Stock Bulls in Charge as S&P 500 Extends July Gain: Markets Wrap

(Bloomberg) -- Stocks finished higher in the final day of July as the S&P 500 notched its longest streak of monthly gains since August 2021, defying worries about an overheated market.

Wall Street has looked past concerns about an earnings recession as economic data bolstered hopes on a soft landing despite the Federal Reserve's rate hikes. Signs are beginning to point to capitulation among bearish institutional investors, economists and strategists as market returns continue to challenge expectations, said Mark Hackett at Nationwide.

Citigroup Inc.'s Scott Chronert has joined the list of strategists who have revisited their gloomy outlooks in recent weeks, raising his forecast for the S&P 500. Morgan Stanley's Michael Wilson, who has been among the market's leading pessimists throughout 2023, changed his tone and now sees the rally running further.

“The challenges companies have endured – stubborn inflation, weak markets, and sluggishness internationally – are no longer headwinds,” Hackett noted. “Now, we're not only seeing tailwinds heading into 2024, but we're getting less disruptive reactions in the stock market following earnings reports.”

The S&P 500 edged higher to around 4,590 Monday, closing at a 16-month high. The megacap space saw subdued action, with Apple Inc. and Amazon.com Inc. due to report earnings in the coming days. The Nasdaq 100 notched its longest streak of monthly gains since August 2020. Treasury 10-year yields traded near 3.95% while the dollar posted a small gain.

Word of Caution

To Matt Maley at Miller Tabak + Co., investors need to be careful about extrapolating what we've seen this year in stocks, and it's essential to have a backup plan for when the “fear of missing out” fades or “some compelling cracks” start to form. He's among those betting broad equity averages will see limited upside over the next couple of months.

“Is merely ‘avoiding a recession' really enough to push the stock market a lot higher from its expensive level? said Maley. “Investors need to be careful about trying to squeeze every last penny out of this rally in the stock market over the coming days and weeks given that many of the best stocks are quite expensive.”

The stock market has been seasonally more muted in August, but if history is any guide, the S&P 500 could see more gains after a five-month winning run. In the prior 37 such streaks since 1928, the gauge extended gains into a sixth month almost 80% of the time, according to Bespoke Investment Group.

In corporate news, Exxon Mobil Corp. climbed as Bloomberg News reported it's in talks with Tesla Inc., Ford Motor Co. and other automakers about supplying them with lithium. SoFi Technologies Inc. surged 20% as the online bank raised its revenue guidance. Yellow Corp., which hauls about 15% of major companies' so-called less-than-truckload shipments, soared after ceasing operations and telling union leaders that it plans to file for bankruptcy.

Fed Survey

Traders took a Federal Reserve survey of lending officers in stride. As hinted by Chair Jerome Powell, the central bank said financial institutions reported tighter standards and continued weak demand for loans in the second quarter, extending a trend that began before recent stresses in the banking sector emerged.

Meantime, Fed Bank of Chicago President Austan Goolsbee said data showing slower inflation is “fabulous news,” but he hasn't yet decided on whether to support pausing rate hikes at the next policy meeting. Over the weekend, his Minneapolis counterpart Neel Kashkari said the inflation outlook is “quite positive,” though the central bank's aggressive tightening will likely result in some job losses and slower growth.

Elsewhere, the yen dropped after the Bank of Japan announced an unscheduled bond-purchase operation to tamp down rates after adjusting policy on Friday to allow benchmark yields to climb as high as 1%.

Key events this week:

• Reserve Bank of Australia policy decision, Tuesday
• Eurozone S&P Global Eurozone Manufacturing PMI, unemployment, Tuesday
• US construction spending, ISM Manufacturing, job openings, light vehicle sales, Tuesday
• China Caixin Services PMI, Thursday
• Eurozone S&P Global Eurozone Services PMI, PPI, Thursday
• Bank of England rate decision, Thursday
• US initial jobless claims, productivity, factory orders, ISM Services, Thursday
• Eurozone retail sales, Friday
• US unemployment rate, non-farm payrolls, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.2% as of 4 p.m. New York time
• The Nasdaq 100 was little changed
• The Dow Jones Industrial Average rose 0.3%
• The MSCI World index rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%
• The euro fell 0.2% to $1.0995
• The British pound fell 0.1% to $1.2834
• The Japanese yen fell 0.8% to 142.25 per dollar

Cryptocurrencies

• Bitcoin fell 0.3% to $29,172.15
• Ether fell 0.5% to $1,856.3

Bonds

• The yield on 10-year Treasuries was little changed at 3.96%
• Germany's 10-year yield was little changed at 2.49%
• Britain's 10-year yield declined two basis points to 4.31%

Commodities

• West Texas Intermediate crude rose 1.6% to $81.86 a barrel
• Gold futures rose 0.2% to $2,004 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Brett Miller, Richard Henderson, John Viljoen, Vildana Hajric and Isabelle Lee.

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