S&P 500 and Dow Jones Setting New Highs as Investors Overlooked Geopolitical Tensions

Alexander Garcia
09 Oct, 2024
Miami

Stocks on Wall Street overcame morning doldrums to advance on Wednesday as investors reviewed the Fed's policy meeting minutes and awaited inflation updates later in the week. 

The S&P 500 index inched higher 0.5% and traded at a new intraday record, and the Nasdaq Composite edged up 0.4%. Investors remained positive ahead of the start of the earnings season, and leading banks are expected to report better-than-expected earnings.

Market sentiment has been on the rebound over the last three weeks after string positive economic data confirmed the resilience of the U.S. economy and supporting labor market conditions. 

However, investors dialed down aggressive rate-cut expectations after the U.S. economy added jobs in September at the fastest pace in six months. 

The latest FOMC meeting minutes showed members felt confident that inflation is on the sustained downward path towards the Fed's target rate of 2%.

While economic activities continued to expand at a solid pace, job gains have moderated, and the jobless rate had edged up but remained low. 

The committee members wanted to make sure that the aggressive rate is viewed as a balancing act to keep the labor market from weakening further and not as a signal that the economy is deteriorating faster than previously estimated. 

Market participants are growing confident in the Fed's ability to engineer a so-called soft landing, meaning cooling inflation without dipping the economy into a recession. 

Investors are hoping that the consumer price inflation report on Thursday and the producer price inflation report on Friday will confirm the downward trajectory of inflation in September. 

Hurricane Milton was also in focus as the big and powerful storm barrels towards the West Coast of Florida, and the National Hurricane Center is anticipating the storm to make landfall sometime late tonight on Wednesday or early Thursday. 

Devastating winds of speed as high as 150 mph with rainfall of more than 15 inches are expected to hit most of the coastal cities and towns from Cedar Key down to Naples. 

Catastrophe insurance companies are bracing for a surge in claims after the second hurricane hits the Florida shores in as many weeks, as tropical storms turn to hurricanes on warm waters of the Gulf of Mexico and Atlantic Ocean, causing widespread wind and water damage. 

  

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.5% to 5,783.48, the Nasdaq Composite rose 0.4% to 18,264.42, and the Russell 2000 index fell 0.5% to 2,205.21. 

The yield on 2-year Treasury notes edged higher to 4.0%, 10-year Treasury notes inched up to 4.05%, and 30-year Treasury bonds inched higher to 4.33%.

WTI crude oil decreased $0.57 to $73.08 a barrel, and natural gas prices edged down 8 cents to $2.64 a thermal unit.

Gold fell by $13.44 to $2,608.50 an ounce, and silver decreased by $0.20 to $30.45.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher to 102.74.

 

U.S. Stock Movers

Boeing Company declined 3% to $150.09, and the company withdrew its wage offer to machinists after talks broke down. 

S&P Global placed Boeing's debt rating on a negative credit watch list and said the 33,000 machinists union strike will cost more than $1 billion per month. 

Alphabet Class A declined 1.3% to $162.17 after the Justice Department requested a U.S. judge to order severe restrictions on the company's "unlawful monopoly in search" or break up its operations. 

Generac increased 1.6% to $173.85, a two-year high, after Hurricane Milton intensified and widened to cover a larger area in Florida. 

The deadly and most severe storm of the year is expected to knock out powerlines in several counties across Florida, potentially impacting several million people. 

 

European Markets Wavered After China Stimulus Rally Faded

European markets struggled to stay above the flatline as the China stimulus rally faded and investors shifted their attention to the rate path and the region's economic growth prospects. 

Benchmark indexes in Paris, London, Milan, and Frankfurt edged higher as investors debated rate paths ahead of the ECB policy meeting next week. 

Investor sentiment has wavered in recent weeks amid elevated tensions in the Middle East, resurgent crude oil prices, and rate path uncertainty in the U.S. and Europe. 

However, the latest set of U.S. economic data has increased confidence in the Federal Reserve's plan to engineer a so-called soft landing—cooling inflation without dipping the economy into a recession. 

In the currency union, inflation has fallen to the target rate set by the European Central Bank, but that has largely been achieved because of the weakening in crude oil prices over the last year. 

The Euro Area continues to struggle with near-zero economic growth amid high costs of living and record low unemployment. 

 

Germany's Trade Surplus Widened In August 

Germany's goods exports rose unexpectedly in August, helping the country to widen its international goods surplus from the previous month and from a year ago. 

Total international goods exports increased 1.3% from the previous month to Є131.9 billion, and imports decreased 3.4% to Є109.4 billion, according to the Federal Statistical Office, or Destatis. 

The goods trade surplus widened to 22.5 billion from Є16.9 billion in July and Є18.9 billion in August 2023. 

Shipments to three leading destinations rose in August, surpassing the expectations set by the market. 

Seasonally adjusted exports to the U.S. increased 5.5% to Є13.5 billion, to the People's Republic of China rose 1.9% to Є7.4 billion, and to the U.K. advanced 5.7% to Є6.8 billion. 

Imports from China declined 1.4% to 13.2 billion, from the U.S. rose 0.7% to Є7.8 billion, and from the U.K. eased by 0.1% to Є2.9 billion. 

 

Europe Indexes and Yields

The DAX index increased by 1.0% to 19,254.93; the CAC-40 index rose by 0.5% to 7,560.59; and the FTSE 100 index advanced by 0.7% to 8,243.74. 

The yield on 10-year German bonds edged lower to 2.23%, French bonds inched lower to 3.01%, the UK gilts edged down to 4.17%, and Italian bonds increased to 3.54%.

The euro edged lower to $1.09; the British pound inched lower to $1.30; and the U.S. dollar weakened to 85.71 Swiss cents.

Brent crude decreased $1.02 to $76.13 a barrel, and the Dutch TTF natural gas rose by €0.08 to €38.64 per MWh. 

 

Europe Stock Movers

Mondi plc increased 4.6% to 1,468.0 pence, and the packaging company agreed to acquire Schumacher Packaging's businesses in Western Europe for €684 million. 

CMC Markets plc increased 4.1% to 317.50 pence after the online financial trading company said its first-half results swung to a profit compared to a loss in the previous year driven by a higher operating income. 

Rio Tinto plc declined 0.4% to 5,018.0 pence after the mining company agreed to acquire Arcadium Lithium for $6.7 billion. 

Continental AG increased 6.7% to €59.58 after the automotive parts maker estimated third quarter profit to improve despite the expected decline in sales. 

The company said its tire business is likely to face some headwinds in the fourth quarter, with a modest increase in volume, stable prices, and higher raw material costs. 

 

Rate and Yen Speculation Continues to Dictate Stock Market Moves In Tokyo 

Stocks in Tokyo advanced following the gains in broader market indexes in overnight trading on Wall Street. 

The Nikkei 225 stock average gained nearly 1%, but the broader Topix index lagged with a rise of 0.3% as the tech rally in Tokyo failed to spread to other sectors. 

Market optimism was also supported by the further weakness in the yen, and the Japanese currency eased to 148.48 against the U.S. dollar. 

The Japanese officials attempted to limit the rapid decline in the currency by reminding investors that the central bank is ready to step in to arrest the swift decline in the currency. 

Despite the jawboning by Japanese officials, investors are anticipating the yen to fall as low as 158 against the dollar, which could provide an additional boost to the stock market. 

 

Japan Stock Movers 

The Nikkei 225 Stock Average increased 0.9% to 39,277.96, and the roader Topix index gained 0.3% to 2,707.24. 

Tech stocks traded higher for the second day this week following the surge in New York. 

Tokyo Electron increased 1.2% to ¥25,770.0, Advantest gained 3.7% to ¥7,639.0, and Lasertec added 4.4% to ¥24,670.0. 

Retailers were in focus again after the recent weakness in the yen raised hopes of a boost in store sales. 

Seven & I Holdings increased 4.5% to ¥2,335.0, Fast Retailing added 1.1% to ¥50,710.0, and Isetan Mitsukoshi declined 0.4% to ¥2,334.50. 

Seven & I Holding jumped after a Bloomberg News report suggested that Canada-based Couche-Tard revised its takeover offer to $47 billion from the $38 billion original offer. 

Seven & I operates a chain of 85,000 convenience store chains in 20 countries. 

 

China Stocks Hit Wall of Earnings Growth Realities 

Stock market indexes in mainland China and Hong Kong traded down as investors reassessed the scale of the three-week rally. 

The Hang Seng index bounced around between gains and losses, and the CSI 300 index dropped as much as 4% after investors headed for exit. 

Chinese investors fell into a familiar pattern of raised hopes by authorities, only to be followed by severe despair for the third time this year. 

Investors shifted their attention to an upcoming release of September economic data on October 18 and held out for more clear and specific measures that could revive consumption. 

China's economy has struggled to meet the government's annual growth target rate of 5%, but the world's second-largest economy is still the fastest-growing in the top five economies of the world. 

About three weeks ago, the People's Bank of China announced a raft of monetary policy measures that jolted the market sentiment. 

The market rally reached a feverish pitch after Politburo, in an unexpected meeting at the end of September, issued a strongly worded note to local governments to "do whatever it takes" to meet growth targets. 

There is a growing realization among investors, after two weeks of reflection, that the recent market run-up may have gone too far.

And little has changed in the real economy in the near future, which could provide a boost to corporate earnings over the next two quarters. 

The central authorities' previous two attempts to jawbone the market rally have produced few results for investors and failed to revive consumer confidence, the critical ingredient needed for the sustained market rally. 

 

China Stock Movers 

The Hang Seng index increased 0.8% to 21,096.32, and the mainland-focused CSI 300 index dropped 3.3% to 4,125.26. 

Bank of China declined 3% in Shanghai trading but edged up 0.3% in Hong Kong. China Construction Bank was nearly unchanged in Hong Kong but declined 1.5% in Shanghai. 

Property developers soared as much as 120% in the ten-session rally before turning lower in Tuesday's trading. 

China Vanke declined 4% to HK $7.20, China Resources Land fell 1% to HK $25.70, and Longfor Group dropped 1% to HK $12.82. 

Alibaba Group increased 0.3% to HK $104.70, Tencent Holdings added 0.7% to HK $440.0, and JD.com edged up 1.7% to HK $165.70.