US Stocks Bounce as Traders Digest Rates Message: Markets Wrap

Cecile Gutscher and Alice Atkins
·3 min read

(Bloomberg) -- US stocks rose, bouncing back from Wall Street’s worst week since December, even as evidence mounted that the Federal Reserve could remain restrictive for longer than previously expected.

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The S&P 500 and the Nasdaq 100 rose. Among individual movers, Seagen Inc. soared on a report that Pfizer Inc. is in early-stage talks to acquire the cancer therapy developer. Shares of Union Pacific Corp. shares rose after it said it would replace its CEO amid pressure from a major shareholder. The US 10-year Treasury yield declined to hover around 3.90%. A dollar index dropped.

Investors are parsing fresh US economic data on Monday. Orders for durable goods fell, in their steepest decline since April 2020. But excluding transportation equipment, durable goods orders rose more than expected. Meanwhile, data showed orders placed with US factories for business equipment rose in January, as companies continued to make longer-term capital investments despite uncertainty about the economy.

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 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

In Europe, German benchmark yields hit 2.58%, the highest since 2011, on bets the European Central Bank will extend its tightening cycle beyond this year. A gauge of the region’s stocks rose more than 1%.

Read more: Bets on ECB Hikes in 2024 Send German Yields to 11-Year High

Elsewhere in markets, oil fell as concerns that the Fed will keep on raising rates eclipsed the latest disruption to supplies in Europe and optimism over a demand recovery in China.

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 0.8% as of 9:30 a.m. New York time

  • The Nasdaq 100 rose 1.1%

  • The Dow Jones Industrial Average rose 0.6%

  • The Stoxx Europe 600 rose 1.3%

  • The MSCI World index fell 1.2%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2%

  • The euro rose 0.3% to $1.0584

  • The British pound rose 0.7% to $1.2022

  • The Japanese yen rose 0.3% to 136.07 per dollar

Cryptocurrencies

  • Bitcoin rose 0.9% to $23,765.51

  • Ether rose 1.1% to $1,659.84

Bonds

  • The yield on 10-year Treasuries declined four basis points to 3.91%

  • Germany’s 10-year yield advanced three basis points to 2.57%

  • Britain’s 10-year yield advanced 14 basis points to 3.80%

Commodities

  • West Texas Intermediate crude fell 0.5% to $75.96 a barrel

  • Gold futures rose 0.3% to $1,823.30 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Akshay Chinchalkar, Richard Henderson and Cecile Gutscher.

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