(Bloomberg) — Stocks came off session highs as traders positioned for the Federal Reserve decision, with Wall Street split on the size of a central bank cut.
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The S&P 500 still rose for a seventh straight day, heading for its longest winning streak in about a month. The gauge briefly crossed the threshold of its all-time high. Economically sensitive shares once again beat technology, and the Russell 2000 of smaller firms climbed 1.5%. Treasury yields edged up, with shorter maturities leading the move.
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US retail sales unexpectedly rose in August, supported by online purchases that masked more mixed results at other merchants. The value of retail purchases, unadjusted for inflation, increased 0.1% after a revised 1.1% gain in July. Excluding autos and gasoline stations, sales advanced for fourth month.
“Another Goldilocks number,” said David Russell at TradeStation. “Retail sales are strong enough to keep us out of recession, but not strong enough to stop rate cuts.”
That said, we’re not out of the woods quite yet, according to Bret Kenwell at eToro.
“There are reasons to be concerned about the labor market, and while the consumer is holding on enough to beat economists’ expectations, the results are not necessarily pointing to a consumer that is thriving,” he said.
The S&P 500 rose 0.2%. The Nasdaq 100 climbed 0.2%. The Dow Jones Industrial Average added 0.1%. Microsoft Corp. climbed on a $60 billion buyback and a dividend boost. Intel Corp. gained on plans to make a custom artificial-intelligence chip for Amazon.com Inc.
Treasury 10-year yields advanced three basis points to 3.64%. The market-implied odds that policymakers announce a 50-basis-point rate reduction on Wednesday were around 55%. Traders have fully priced in a full quarter-point worth of easing.
Right or wrong, market expectations were already shifting toward a 50 basis point Fed cut this week, according to Chris Larkin at E*Trade from Morgan Stanley.
“The stronger-than-anticipated headline retail sales number seemed to support that outlook, but the report’s fine print presented a more mixed picture,” Larkin said. “This data isn’t going to decide the issue for the Fed, one way or the other.”
Matt Maley at Miller Tabak, the Fed will either cut 50 basis points or opt for a 25 basis-point reduction, but signal that they will be more aggressive going forward,” Maley said.
Still, he says, that does not guarantee that the stock market and/or bond market will rally in a meaningful way. Maley says the Fed will likely try to convey that a more dovish stance is not seen as something that means they’re suddenly worried about an imminent recession.
“Therefore, given that the stock market is approaching overbought territory, we could still get a ‘sell the news’ reaction to the Fed this week,” he added.
The US economy remains on track for a soft landing, and the recent economic data are consistent with our view that the recession fears that triggered the early August selloff were overdone, according to Solita Marcelli at UBS Global Wealth Management.
“While we believe equity gains will broaden out, we also think there is room for growth stocks, in particular technology stocks, to rise further,” she said.
Marcelli also noted that while Fed rate cuts in non-recessionary periods have historically been favorable for equities overall, they also make growth stocks more attractive as lower rates increase the present value of these companies’ future cash flows.
Key events this week:
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Eurozone CPI, Wednesday
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Fed rate decision, Wednesday
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UK rate decision, Thursday
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US US Conf. Board leading index, initial jobless claims, US existing home sales, Thursday
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FedEx earnings, Thursday
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Japan rate decision, Friday
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Eurozone consumer confidence, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 rose 0.2% as of 12:21 p.m. New York time
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The Nasdaq 100 rose 0.2%
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The Dow Jones Industrial Average rose 0.1%
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The MSCI World Index was little changed
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S&P 500 Equal Weighted Index rose 0.4%
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Bloomberg Magnificent 7 Total Return Index rose 0.6%
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The Russell 2000 Index rose 1.3%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro fell 0.1% to $1.1118
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The British pound fell 0.4% to $1.3158
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The Japanese yen fell 0.8% to 141.79 per dollar
Cryptocurrencies
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Bitcoin rose 5.4% to $60,759.51
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Ether rose 4.3% to $2,371.6
Bonds
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The yield on 10-year Treasuries advanced three basis points to 3.65%
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Germany’s 10-year yield advanced two basis points to 2.14%
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Britain’s 10-year yield advanced one basis point to 3.77%
Commodities
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West Texas Intermediate crude rose 2.1% to $71.56 a barrel
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Spot gold fell 0.7% to $2,565.23 an ounce
This story was produced with the assistance of Bloomberg Automation.
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