Stocks extend rebound on earnings, rate-cut bets: Markets Wrap

by Anand Krishnamoorthy and Robert Brand

Stocks extended a rebound fueled by bets on Federal Reserve interest-rate cuts as well as robust corporate earnings.

The Stoxx Europe 600 index climbed for a second day. BP Plc jumped after announcing a profit beat and share buyback, while logistics firm DHL Group, drinks maker Diageo Plc and semiconductor maker Infineon Technologies AG gained on strong results.

Futures on the S&P 500 advanced 0.3% after the underlying gauge climbed by the most since May on Monday as dip buyers stepped in following last week’s steep selloff. Contracts on the Nasdaq 100 were up about 0.4%.

Traders are increasingly pricing in Fed rate cuts after Friday’s weak jobs report, which dragged down stocks and sent bond prices sharply higher. Equities have rebounded from their April lows, driven by growing conviction that corporate America can absorb the impact from tariffs and that the Fed will step in to stave off a recession.

“It seems like this is a bull market that you just can’t keep down for especially long, even if my conviction in the bull case has been shaken somewhat,” said Michael Brown, senior research strategist at Pepperstone Group Ltd. “It seems that all the equity bulls needed was a break over the weekend to think up a reason as to why they should be buying the dip.”

Treasuries slipped marginally across the curve with yields on the policy-sensitive two-year rising more than 2 basis points to 3.70%. A gauge of the dollar was little changed.

Oil steadied after a three-day drop as investors weighed the impact of risks to Russian supplies, with US President Donald Trump stepping up his threat to penalize India for buying Moscow’s crude. Indian stocks fell 0.3% and the rupee weakened. 

Fed San Francisco President Mary Daly said the time is nearing for rate cuts given mounting evidence that the job market is softening and there are no signs of persistent tariff-driven inflation, Reuters reported. Money markets are pricing in a more-than-80% chance of a 25-basis-point fed rate cut next month, and a one-in-three probability of another by year-end. 

S&P 500 earnings are crushing second-quarter expectations — up 9.1%, triple the pre-season forecast and the strongest beat rate since 2021, according to data compiled by Bloomberg Intelligence.

On the other hand, the stock market is meting out the harshest punishment in decades to companies that fall short of earnings estimates in Europe, according to Goldman Sachs Group Inc.

Monday’s jump in stocks prompted a comment from Trump, who said it was a “Good day in the Stock Market” and there will be many more days like this.

“America is very rich again, and stronger than ever before,” Trump wrote on his Truth Social platform Monday. 

Still, a chorus of stock market prognosticators at some of Wall Street’s biggest firms are warning clients to prepare for a pullback as sky-high equity valuations slam into souring economic data. 

On Monday, Morgan Stanley, Deutsche Bank AG and Evercore ISI all cautioned that the S&P 500 Index is due for a near-term drop in the weeks and months ahead. The predictions come after a furious rally from April’s lows that propelled the gauge to levels it has never seen before.

“The question is whether bad news is bad news (economy slowing down) or good news (Fed moving towards rate cuts),” said Mohit Kumar, chief economist at Jefferies,who remains bullish on risky assets in the medium term. “A modest weakening of the economy would be good news as it should be more easing from the Fed. However, a sustained and sharp rise in unemployment rates would be a negative as it would raise concerns over growth and earnings.”

On the tariff front, the European Union is expecting Trump to announce executive actions this week to formalize the bloc’s lower levies for cars and grant exemptions from levies for some industrial goods such as aviation parts, according to people familiar with the matter. Meanwhile, the Swiss government said it is determined to win over Washington after last week’s shock announcement of 39% levies on exports to America.

Japan’s top trade negotiator plans to leave for the US on Tuesday as Tokyo aims to urge Washington to proceed with a cut to tariffs on cars as promised in last month’s trade deal.

“Tariffs are going to come back to haunt us on a periodic basis going forward,” said Aidan Yao, senior investment strategist for Asia at Amundi Investment Institute in Hong Kong told Bloomberg TV. “We’re in a very volatile ceasefire, but this is not a credible end to the trade war.”

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.4% as of 8:14 a.m. London time
• S&P 500 futures rose 0.3%
• Nasdaq 100 futures rose 0.4%
• Futures on the Dow Jones Industrial Average rose 0.2%
• The MSCI Asia Pacific Index rose 0.8%
• The MSCI Emerging Markets Index rose 0.6%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro fell 0.1% to $1.1557
• The Japanese yen was little changed at 147.19 per dollar
• The offshore yuan was little changed at 7.1876 per dollar
• The British pound was little changed at $1.3289

Cryptocurrencies

• Bitcoin fell 0.5% to $114,279.08
• Ether fell 1.3% to $3,652.56

Bonds

• The yield on 10-year Treasuries was little changed at 4.20%
• Germany’s 10-year yield declined two basis points to 2.60%
• Britain’s 10-year yield declined one basis point to 4.50%

Commodities

• Brent crude fell 0.2% to $68.60 a barrel
• Spot gold fell 0.1% to $3,369.75 an ounce

This story was produced with the assistance of Bloomberg Automation.

Copyright Bloomberg News