Stocks jumped this morning, driven by positive data from China and remarks from Treasury Secretary Janet Yellen, both of which bolstered optimism regarding the health of the globe’s two largest economies.
The S&P 500 advanced by approximately 0.7%, the Dow climbed about 0.6%, and the tech-heavy Nasdaq Composite increased by nearly 1%. This positive momentum was particularly evident in Tesla’s performance, which surged over 5% in early trading, following an upgrade by Morgan Stanley. Analysts at the firm highlighted the potential of Tesla’s Dojo supercomputer, suggesting it could contribute as much as $500 billion to the company’s market valuation, primarily through the accelerated adoption of “robotaxis” and network services.
Despite the recent downturn, major indices aimed to recover from a week that witnessed tech stocks, including Apple, falter. However, Apple’s stock showed signs of recovery, especially with its much-anticipated iPhone event scheduled for tomorrow.
Investor attention this week will be on the Consumer Price Index (CPI) inflation data set to be released on Wednesday. This data is pivotal for investors gauging the Federal Reserve’s potential stance on interest rate adjustments in its upcoming September meeting. According to the CME Group’s FedWatch tool, Treasury markets are pricing in just a 7% chance of a rate at the Fed’s upcoming meeting.
Yellen helped assuage both rate and economic fears with a recent statement. On Sunday, she expressed confidence in the U.S. economy’s ability to sidestep a recession while simultaneously managing consumer price increases, a central topic in the Federal Reserve’s discussions.
In international markets, new inflation data from China has ignited hopes of recovery for the Asian economic giant, after its prolonged struggle to bounce back had been a point of concern for investors.
In Asia, Kazuo Ueda, Governor of the Bank of Japan, hinted at a potential shift in monetary policy. He suggested that the bank might consider moving away from negative interest rates once its 2% inflation target appears achievable. This indicates a potential shift towards interest rate hikes, a departure from the bank’s longstanding ultra-accommodative stance.
In corporate news, reports emerged of Disney and Charter resolving their significant carriage dispute, just in time for Monday Night Football on Disney’s ESPN. Following this development, shares of both companies rose by over 2%. Other media entities, including Paramount Global and Warner Bros. Discovery, also saw their stocks rise.
On the topic of interest rates, Oppenheimer’s Chief Investment Strategist, John Stoltzfus, emphasized that the stock market might not be accurately pricing the path of interest rates. He advised investors to temper their expectations and highlighted that inflation remains distant from the Federal Reserve’s target. He also noted the possibility of one more rate hike this year and potentially another in the coming year.
And Stoltzfus is absolutely right; the Fed wants to see inflation drop further. Even worse, surging oil prices, sparked by an OPEC+ supply cut, could cause headline inflation to rebound. Core inflation – excluding food and energy prices – has remained far “stickier” than anticipated, too.
The longer that Yellen and Powell talk about how strong the U.S. economy is, the bigger the disappointment will be when the economy slows down again, and hopefully not at the same time inflation creeps higher, which would ultimately hammer rate-sensitive shares lower as yields spike.