Market Snapshot: Dow climbs 200 points as stocks rally ahead of August inflation reading

market-snapshot:-dow-climbs-200-points-as-stocks-rally-ahead-of-august-inflation-reading

U.S. stocks were on track for a fourth consecutive day of gains on Monday as traders prepared for the next major inflation data this week.

How stocks are trading
  • The Dow Jones Industrial Average DJIA, +0.79% rose 220 points, or 0.7%, to 32,371.
  • The S&P 500 SPX, +1.06% was up 38 points, or 0.9%, at 4,106.
  • The Nasdaq Composite COMP, +1.15% advanced 125 points, or 1%, to 12,238.

Major indexes snapped a streak of three straight weekly declines on Friday. The Dow posted a 2.7% weekly rise, while the S&P 500 rose 3.7%, and the Nasdaq Composite advanced 4.1%.

What’s driving markets

The upbeat mood from the last several days was continuing into Monday’s session and followed positive closes in Europe. The risk-on tone extended to currencies, where the dollar pulled further back from recent highs.

The latest equity rebound, with the S&P 500 up almost 5% since last Tuesday’s close, suggests investors now appear comfortable with the prospect of a 75 basis point interest rate rise by the Federal Reserve at the conclusion of its meeting on Sept. 21.

There is also hope among bulls that the August U.S. consumer prices report due Tuesday will show a negative reading month-on-month, helping cement expectations that inflation has peaked and the Fed is unlikely to hike borrowing costs beyond the 4% level currently priced by markets. Producer prices data will be released on Wednesday.

Read: Inflation is slowing, U.S. August CPI to show, but not enough to mollify a worried Fed

Beyond the August data, year-over-year inflation readings appear set to continue declining as commodity prices and other elements level off, said Tom Plumb, portfolio manager of the Plumb Balanced Fund, in a phone interview.

“As we see year-over-year inflation come down closer to target, I think we will have less hawkish Fedspeak and that will be seen as positive for the market,” he said.

Market sentiment was not only bolstered by optimism about Tuesday’s CPI data, but also developments in Europe, where Ukraine was making progress in its counteroffensive against Russia.

“There are probably a couple of reasons to be bullish in the medium and longer term,” said Peter Azzinaro, an investment executive for Convera in Chicago. “One is that there’s a feeling we are getting closer to peak inflation. Positioning was probably a little overdone on the negative outcomes for inflation and we’re seeing a big correction on that.”

In addition, “geopolitical risks overall were on the top of mind for everybody and we are starting to see an ease on that front,” he said via phone on Monday.

Jonathan Krinsky, chief market technician at BTIG, noted that technical factors had helped sentiment, but that gains may prove fragile given seasonal headwinds and if the dollar and bond yields did not continue to retreat.

“Bears fumbled on the goal line as they tried to break under 3,900 last week, but the game is not over yet. We see downside risk as we head into the seasonally weak second part of September. While the dollar and rates paused their ascent, there was no reversal and 10-year real rates actually closed at fresh 52-week highs,” said Krinsky.

The U.S. 10-year Treasury yield TMUBMUSD10Y, 3.334% was down 2 basis points at just under 3.3% and the ICE U.S. Dollar Index DXY, -0.81% was off 0.8%.

Check out: Stock-market wild card: What investors need to know as Fed shrinks balance sheet at faster pace

Companies in focus
  • Twitter Inc. TWTR, -1.86% said on Monday that Elon Musk’s latest argument for terminating his $44 billion acquisition of the social-media platform was invalid. Twitter shares fell 1.9%.
  • Activist investor Dan Loeb signaled on Sunday through Twitter that he is backing off his push to persuade Walt Disney Co. DIS, +1.01% to spin off its popular sports television network ESPN. Disney shares rose 0.6%.

— Jamie Chisholm contributed to this article.

Hear from Ray Dalio at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The hedge-fund pioneer has strong views on where the economy is headed.

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