Monday's trading session on Wall Street ended with a confident rise in key indices, including the S&P 500 and Dow Jones, which reached historical highs. The main driver — investor interest in tech giants ahead of the upcoming corporate earnings reports and important economic data.
Despite fairly calm trading activity due to the bond markets being closed for a federal holiday, 9.55 billion shares were traded. In comparison, the average volume for the past 20 days was 12.05 billion shares. Yet, even with reduced trading volumes, Wall Street maintained the upward momentum that began on Friday when the largest U.S. banks kicked off the third-quarter earnings season on a positive note.
Amid this optimism, the Dow Jones Industrial Average surpassed the 43,000-point mark for the first time in history. This growth is fueled by expectations of corporate earnings: 41 companies from the S&P 500 are expected to release their results this week. These figures will help investors assess the current state of the U.S. economy and determine whether corporations can continue to justify the high valuations of the stock market.
The primary contribution to the rise of the indices on Monday came from tech companies, especially in the semiconductor sector. The semiconductor index (.SOX) rose by 1.8%, reaching a two-month high. Notably, Arm Holdings' shares gained 6.8%, and Nvidia (NVDA.O) closed up 2.4%, hitting a record closing price. These companies became growth leaders, pulling the market along with them.
The information technology index was the clear leader among all S&P 500 sectors, increasing by 1.4%. Investors poured heavily into technology companies, which led to the growth of giants Alphabet, Apple, Microsoft and Tesla. Their shares showed gains of between 0.6% and 1.6%, which significantly strengthened the market's position.
Wall Street's major indexes ended the day on a positive note. The S&P 500 Index increased by 44.82 points, which corresponds to an increase of 0.77%, and reached 5,859.85 points. Meanwhile, the Nasdaq Composite Index rose by 159.75 points, or 0.87%, and ended the day at 18,502.69 points. The Dow Jones Industrial Average added 201.36 points, or 0.47%, to a record 43,065.22.
Despite the Dow's new highs, its gains were somewhat limited by declines in individual stocks. Industrial giant Caterpillar shares fell 2% after a broker downgraded the stock. Boeing also showed negative dynamics, falling 1.3% after reporting a bigger-than-expected third-quarter loss.
The third-quarter earnings reports from major banks added to the optimism in the market. Investors are hoping that positive results will help continue the uptrend into 2024. However, many analysts warn that lofty stock valuations could be a major obstacle. The S&P 500 is currently trading at 21.8 times forward earnings, well above its long-term average of 15.7. This creates some pressure for companies that may struggle to meet investor expectations.
S&P 500 earnings growth for the third quarter is expected to be 4.9% year-over-year, according to data released by LSEG late last week. These results could be a key indicator of the strength of the economy and the future outlook for the stock market.
Investors eagerly await the continuation of the corporate earnings season, and analysts are already expressing positive forecasts. Kevin McCullough, a portfolio consultant at Natixis Investment Managers Solutions, noted that current company earnings expectations are less inflated compared to previous cycles, making it easier for companies to meet them.
"This earnings cycle differs from past ones when expectations were extremely high, and companies found it difficult to meet them," McCullough said. He emphasized that with the bar now set lower, investors are more likely to react positively to corporate results. This backdrop creates favorable conditions for stock prices to rise as earnings reports are released.
On Tuesday, attention will turn to the reports from major financial players like Bank of America and Citigroup. Additionally, the market is awaiting results from healthcare giants Johnson & Johnson and UnitedHealth Group. Their performance will be an important indicator for investors evaluating the state of key economic sectors.
Investors are also closely watching the upcoming economic data, particularly the September retail sales figures. These will be crucial in understanding the financial health of U.S. consumers, which, in turn, will help predict the Federal Reserve's next moves.
Kevin McCullough highlighted that consumer-related data is becoming increasingly important in analyzing current economic conditions. He noted that consumer behavior is now the main focus for the Federal Reserve, especially as it navigates its policy aimed at supporting economic growth.
Amid expectations of lower interest rates, two Federal Reserve officials expressed cautious positions regarding future decisions. Minneapolis Fed President Neel Kashkari predicted only moderate rate cuts as inflation stabilizes near the central bank's 2% target. Meanwhile, Fed Governor Christopher Waller stressed the importance of a cautious approach to rate cuts, emphasizing the need for careful analysis of economic conditions.
The main growth on the stock market on Monday was driven by mega-cap tech companies, which are traditionally associated with high growth rates. Their performance helped Nasdaq strengthen significantly, becoming the day's leader. Meanwhile, the S&P 500 and Dow Jones indexes finished the session at new record highs.
Amid positive results for U.S. indices, oil prices dropped, while the dollar remained stable. These changes were driven by negative economic news from China, raising concerns about a global demand slowdown. Beijing, which had pledged to "significantly increase" debt to support its economy on Saturday, disappointed investors with a lack of concrete details on the proposed stimulus measures.
Another negative factor for global markets was the sharp slowdown in Chinese exports, data for which was released on Monday. This report fell significantly short of expectations, further highlighting the need for strong and specific economic stimuli. "China is clearly facing problems," said Sam Stovall, chief investment strategist at CFRA Research. According to him, oil prices serve as a clear indicator of the lack of confidence that Beijing will manage to steer its economy back on track, especially given the lack of concrete measures.
Bond markets were closed on Monday due to Columbus Day, and the lack of significant economic reports or corporate earnings left investors in a state of anticipation. However, by the end of the week, the situation is expected to change: key data on retail sales, industrial production, and housing starts will be released. These reports will provide important indicators of the current state of the economy and may influence market sentiment.
By the end of the week, investors will focus on major corporations that are set to release their financial results. Among them are Bank of America, Citigroup, Goldman Sachs, Morgan Stanley, and streaming giant Netflix. Additionally, many companies in the healthcare and industrial sectors are expected to report, which could impact market movements.
European markets finished trading at two-week highs despite ongoing volatility. Investors chose to focus on the upcoming corporate earnings season and the European Central Bank's meeting later this week, sidelining China's economic stimulus plans. The MSCI World Index showed gains, rising 0.51% to 857.10 points.
The STOXX 600 index gained 0.53%, while the FTSEurofirst 300 increased by 0.56%. These figures indicate that European markets are maintaining positive momentum despite global economic uncertainties. Meanwhile, emerging market stocks saw a modest rise of 0.02%, reflecting cautious optimism among market participants.
Asian-Pacific markets ended the session without a clear trend. The MSCI index for the region, excluding Japan, remained almost unchanged, falling by just 0.02%. However, Japan's Nikkei index continued its upward movement, gaining 224.91 points, or 0.57%, to close at 39,605.80 points.
The U.S. dollar continued to strengthen, reaching a 10-week high against a basket of global currencies. This trend was supported by economic data that confirmed expectations of a moderate reduction in interest rates by the U.S. Federal Reserve, bolstering confidence in the dollar amid global uncertainty.
The dollar index, which measures the dollar's value against a basket of major currencies, including the euro and the yen, rose by 0.18%, reaching 103.23. Meanwhile, the euro weakened, falling 0.31% to $1.0903. The dollar also gained 0.42% against the Japanese yen, reaching 149.76 yen per dollar. The strengthening of the U.S. currency continues to attract investor attention amid expectations of future Federal Reserve rate cuts.
Oil prices continued to fall after OPEC revised its oil demand growth forecasts for 2024 and 2025 downwards. Adding to the pressure was the continued decline in China's oil imports, which dropped for the fifth consecutive month. U.S. crude oil fell by 2.29%, closing at $73.83 per barrel, while Brent crude dropped 2% to $77.46 per barrel.
As the dollar strengthened, gold retreated from its weekly highs. Spot gold fell by 0.12%, reaching $2,652.68 per ounce, while U.S. gold futures slipped 0.09% to $2,655.30 per ounce. The rising U.S. currency continues to weigh on precious metals, reducing their attractiveness to investors.
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