Wall Street rises as materials and crypto stocks offset continued bond sell-off
Investing.com -- The S&P 500 climbed to a record close Friday as traders bet that a surprise drop in July payrolls would keep the Federal Reserve from raising interest rates in the near term.
The broad index rose 0.62% to close at 7,757.64, while the Nasdaq Composite gained 1.3% to 26,690.62 and the Dow Jones Industrial Average added 151.83 points, or 0.28%, to 54,036.93.
All three indexes closed out a second consecutive week of gains, their best weekly performance since April. The S&P 500, which topped 7,700 for the first time earlier in the week, rose 3.6% over the five sessions. The Nasdaq jumped 5.2%, aided by a rebound in chip stocks, while the Dow advanced nearly 3%.
Nonfarm payrolls fell by 23,000 in July, confounding economists polled by Dow Jones who had forecast a gain of 83,000. The unemployment rate slipped to 4.1%, against expectations that it would hold at 4.2%, as labor force participation dropped to its lowest level in more than five years.
Fed funds futures now show traders largely expect the central bank to leave its benchmark rate unchanged at 3.50%-3.75% at its September meeting, according to the CME FedWatch tool, a sharp shift from just days earlier, when markets had priced in a 55% chance of a quarter-point hike.
This week, the tech-led rally that has driven stocks to record highs faces a test from fresh inflation data. The July CPI report, due out days after a Fed meeting that exposed divisions over how to handle inflation still running above the central bank’s 2% target, is expected to show prices rose 3.4% from a year earlier, with core CPI—excluding food and energy—seen up 2.5%, according to economists polled by Reuters.
A producer price report follows a day later, while Friday’s retail sales data will offer a read on consumer spending.
"Inflation prints have begun to peak out in the latest data, surprising to the downside in the June reading. Core measures are also easing, with core PCE tracking below 3% annualized on recent sequential prints," JPMorgan strategists said in a note. "We continue to see big differences to 2022, and do not expect much inflationary pressure to materialize."
More AI trade earnings on tap
The corporate earnings calendar thins out this week following weeks of heavy reporting, though several prints that could impact the AI and tech trade are due, including those from Applied Materials, Cisco, CoreWeave, Super Micro and JD.com.
The S&P 500’s year-to-date gain now exceeds 13%, with corporate profits topping elevated expectations for a second straight quarter, reinforcing investor optimism about the equity backdrop.
"Our view was that the Q2 reporting season would be reassuring for equities, which acts to stabilize the fallout from the momentum unwind. The proportion of stocks beating in Q2 is materially up vs typical, with both US and Europe printing 20%+ yoy EPS growth rates," JPMorgan strategists led by Mislav Matejka said in a note.
What analysts are saying about U.S. stocks
Evercore ISI: "The AI bull is getting wild, driven by earnings volatility, plunging hyperscaler FCF, large Oil price gyrations, a new Fed Chair, Warsh, and the spectre of midterm volatility all as a seasonally volatile September awaits. Volatility does not mean the bull market is in danger of peaking. Rather, the odds for our Bull Case SPX 9,000 have strengthened. Elements that “kill” a bull market, true FOMO, are still in front of us. But as it was in 1999, more upside will be driven by more volatility. As Earnings Season winds down, the Macro, where uncertainty abounds, reasserts in the near term."
JPMorgan: "We remain positive on stocks, countering numerous concerns, ranging from geopolitics to inflation fears, concentration risk, cycle direction, bond market selloff and other considerations. We believed equity indices should be making fresh all-time highs in 2H - and look for further upside."
Morgan Stanley: "The broadening in EPS growth and revisions continues, while the market is increasingly rewarding higher-quality earnings, stronger free cash flow and AI-driven efficiencies. Favor quality, AI adopters, large cap Financials and Discretionary Goods."
Goldman Sachs: "We continue to expect corporate equity demand will outweigh supply inn 2026. S&P 500 buyback growth is tracking +11% year/year in Q2, with new authorizations totaling a record of nearly $1 trillion YTD. Although the supply-demand balance has shifted in an unfavorable direction for equity investors, we estimate $1.4 trillion of share repurchases this year will offset both the roughly $700 billion of primary corporate equity issuance and the large potential supply from expiring post-IPO lockups."
