The stock market welcomed the latest data underscoring economic resilience even if that means the potential for still tight Federal Reserve policy.

Tech megacaps led the rebound in equities, with the Nasdaq 100 up almost 2 per cent and the S&P 500 halting a two-day drop. Tesla Inc. rallied after a 6 per cent plunge, Snowflake Inc. jumped on an artificial intelligence-related partnership with Nvidia Corp. and Facebook’s parent Meta Platforms Inc. gained as Citigroup Inc. lifted its target. Alphabet Inc. underperformed with an analyst saying Google’s owner was moving “too fast” in AI.

For the first time since early 2022, the consumer confidence report showed that a larger percentage of people expected higher stock prices relative to lower equity values, according to Bespoke Investment Group. While the return of bullish sentiment could be a contrarian indication of a negative reversal, the research firm noted that hasn’t been the case historically.

Since 1987, there have only been three other periods showing net negative readings in bullish sentiment of at least nine months, Bespoke said. In the year after two of those negative streaks, the S&P 500 rallied 10.9 per cent and 19 per cent, respectively — and after a record 18-month run, the equity gauge climbed even more.

“Stocks are bouncing back after some strong US economic data gave a boost to consumer discretionary stocks and as investors piled back into AI trades,” said Edward Moya, senior market analyst at Oanda. “The strong consumer confidence report will likely suggest expectations are not for the labor market to deteriorate quickly, which should confirm expectations that a recession will not happen this year, but most likely next.”

For Kara Murphy at Kestra Investment Management, it’s also important to consider that while consumers are continuing to spend, a lot of that confidence is indeed driven by strength in the jobs market. 

“Are there inflationary expectations still built into the labor market that the Fed really needs to worry about?” Murphy added.

In fact, Treasury yields climbed as the strong data fueled speculation that the Fed will resume raising interest rates after this month’s pause.

FED’S STRESS TEST

In the run-up to the results of the Fed’s stress test, a nearly US$3 billion exchange-traded fund tracking regional lenders was up over 1.5 per cent.

Analysts largely expect banks to sail through the tests even as regulators explore more stringent requirements in the aftermath of a few collapses in the financial industry. Several executives have recently been trying to temper shareholder expectations regarding dividend increases and stock buybacks — which had been the focus of investors in previous years.

Tuesday’s rebound in stocks extended the S&P 500’s rally in June, with the gauge heading toward its fourth consecutive month of gains — the longest winning streak since August 2021.

The equity market made a pivotal shift this month, exiting a phase typically associated with the worst return prospects and powering into a stage that’s tied to a more favorable outlook.

MARKET MODEL

A Bloomberg Intelligence model known as the Market Regime Index — which clusters periods into three phases dubbed accelerated growth (green), moderate growth (yellow) and decline (red) — has flipped out of the cautious red zone that it’s been stuck in for 15 straight months and into yellow. That signals brighter times ahead for stocks, according to BI’s Gina Martin Adams and Gillian Wolff.

In other corporate news, American Equity Investment Life Holding Co. surged to a record on a US$4.3 billion Brookfield bid. Carnival Corp. rallied as several analysts increased their targets for the cruise line operator. Delta Air Lines Inc. rose after boosting its earnings expectations. 

Meanwhile, Walgreens Boots Alliance Inc. sank after the drugstore chain slashed its profit forecast, while Lordstown Motors Corp. plummeted after the electric-vehicle maker filed for bankruptcy.

Key events this week:

• US wholesale inventories, goods trade balance, Wednesday
• Fed to unveil results of annual banking industry stress test, Wednesday
• Policy panel with ECB’s Christine Lagarde, Fed Chair Jerome Powell, BOJ’s Kazuo Ueda and BOE’s Andrew Bailey speak, Wednesday
• Eurozone economic confidence, consumer confidence, Thursday
• US GDP, initial jobless claims, Thursday
• Atlanta Fed President Rafael Bostic speaks, Thursday
• China manufacturing PMI, non-manufacturing PMI, balance of payments, Friday
• US personal income and spending, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.1 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 1.7 per cent
• The Dow Jones Industrial Average rose 0.6 per cent
• The MSCI World index rose 0.9 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.2 per cent
• The euro rose 0.5 per cent to US$1.0963
• The British pound rose 0.3 per cent to US$1.2752
• The Japanese yen fell 0.3 per cent to 144.01 per dollar

Cryptocurrencies

• Bitcoin rose 1.7 per cent to US$30,669.98
• Ether rose 2.4 per cent to US$1,895.41

Bonds

• The yield on 10-year Treasuries advanced four basis points to 3.76 per cent
• Germany’s 10-year yield advanced five basis points to 2.36 per cent
• Britain’s 10-year yield advanced seven basis points to 4.38 per cent

Commodities

• West Texas Intermediate crude fell 2.3 per cent to US$67.75 a barrel
• Gold futures fell 0.5 per cent to US$1,923.20 an ounce