U.S. markets are in a bubble that eclipses the dot-com one: JonesTrading's O'Rourke
U.S. stocks snapped a five-day slide, with energy companies leading the gains as crude oil extended a rally to a six-week high. Bonds yields declined and the dollar was little changed versus its major peers.
The benchmark S&P 500 closed in the green after fluctuating between gains and losses for much of the trading session. A drop in Moderna helped to keep the Nasdaq 100 in negative territory. OPEC predicted stronger demand for its crude on a combination of rising global fuel consumption and output disruptions elsewhere. Industrial metals rose, with aluminum reaching US$3,000 a ton in London for the first time in 13 years amid supply disruptions.
“The market is not overvalued, but it is not as undervalued as it once was,” said Brian Wesbury, chief economist at First Trust Advisors. “A slowdown in GDP will likely slow profit growth, while rising inflation will eventually lift long term interest rates. Tax hikes are still a threat, as are tougher COVID-related restrictions that limit a service-sector recovery.”
Traders are marking time ahead of critical inflation data that traders will use to assess expectations about the timing of stimulus withdrawal and interest-rate hikes. A report on Tuesday may show consumer prices in the U.S. moderated in August.
Elsewhere, Chinese technology shares tumbled after a report that officials are seeking to break up Ant Group Co.’s Alipay. The country’s online platforms were also told to protect the rights of workers in the so-called gig economy. MSCI Inc.’s Asia-Pacific index retreated for the third time in four sessions.
Global stocks have been buoyed this year by robust earnings reports and a rapid recovery from the pandemic-induced recession. With valuations becoming stretched, sentiment soured over the past weeks, amid concerns that economic growth may stall as the delta variant of the coronavirus disrupts the anticipated return to normalcy, while inflation remains sticky. Retail and travel stocks declined.
“Since the beginning of last week, realism has started to set into global equity markets as a long list of shocks percolate through the markets leading to an accelerated slowdown in economic activity in the U.S., a more subdued rebound in Europe and an unknown slowdown in China where the regulatory crackdown and its impact on investments are yet to be measured.” Sebastien Galy, a senior macro strategist at Nordea Investment, wrote in a note to clients.
Meanwhile, President Joe Biden’s US$3.5 trillion tax-and-spending plan faces challenges. Democrat Senator Joe Manchin has cast doubt on the timeline for pushing Biden’s economic agenda through Congress, and proposed tax rates may be watered down to boost the chances of the package being passed.
Here are some events to watch this week:
- U.S. consumer-price index, Tuesday
- Apple product-launch event, Tuesday
- China retail sales, property prices, industrial production, Wednesday
- Quadruple witching day for U.S. markets, Friday
Some of the main moves in markets:
- The S&P 500 rose 0.2 per cent as of 4:07 p.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average rose 0.8 per cent
- The MSCI World index was little changed
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at US$1.1808
- The British pound was little changed at US$1.3835
- The Japanese yen was little changed at 110.01 per dollar
- The yield on 10-year Treasuries declined two basis points to 1.32 per cent
- Germany’s 10-year yield was little changed at -0.33 per cent
- Britain’s 10-year yield declined one basis point to 0.74 per cent
- West Texas Intermediate crude rose 1.3 per cent to US$70.65 a barrel
- Gold futures rose 0.2 per cent to US$1,794.80 an ounce
- The Bloomberg Commodity Spot Index gained 0.6 per cent to reach a fresh 10-year high