Stocks Get Tech Boost Despite ‘Big Bank Gloom’: Markets Wrap

(Bloomberg) — A rally in the world’s biggest technology companies lifted stocks, countering a slew of cautious comments from American bank executives that sent financial shares tumbling.

Tesla Inc. led gains in megacaps. Oracle Corp. hit an all-time high. JPMorgan Chase & Co. sank more than 5% after tempering its earnings optimism. Bank of America Corp. said investment-banking results will come in lower than some on Wall Street expected. Earlier this week, Goldman Sachs Group Inc. signaled its trading unit is on course to drop 10% from the prior year. Ally Financial Inc. flagged intensifying credit deterioration among its borrowers.

Traders also weighed election risks ahead of the first debate between former President Donald Trump and Vice President Kamala Harris. The match-up promises more clarity for investors who’ve already spent months parsing campaign-trail language around tax proposals, tariff projections, government spending plans and policies on energy, electric vehicles, health care and more.

In the run-up to the consumer price index, a 22V Research survey showed that 56% of respondents believe that core inflation is on a “Fed-friendly glide path”. Meantime, the share of investors expecting a recession has stayed elevated. Roughly 48% of investors surveyed expect the reaction to CPI to be “mixed/negligible,” 32% said “risk-on” and only 20% “risk-off.”

“Given the market’s aggressive expectations for Fed rate cuts, a hotter reading should lead to downside volatility,” said Sameer Samana at Wells Fargo Investment Institute. “A cooler print has more two-way risk as it creates more room for the Fed to cut, but may also indicate the economy is slowing faster than anticipated.”

The S&P 500 rose 0.45%. The Nasdaq 100 added 0.9%. The Dow Jones Industrial Average fell 0.2%. A Bloomberg gauge of the “Magnificent Seven” megacaps jumped 1.5%. The Russell 2000 of small firms was little changed. The KBW Bank Index sank 1.8%.

Treasury 10-year yields dropped six basis points to 3.64%. Brent futures slid below $70 as oversupply fears deepened.

US equities are unlikely to slump 20% or more as the risk of a recession remains low against expected interest-rate cuts from the Fed, according to Goldman Sachs Group Inc. strategists.

The team led by Christian Mueller-Glissmann said while stocks could decline into the year end — hurt by higher valuations, a mixed growth outlook and policy uncertainty — the odds of an outright bear market are slim as the economy is also in part being supported by a “healthy private sector.”

Moreover, a historical analysis by the strategists shows that declines of over 20% in the S&P 500 have become less frequent since the 1990s, driven by longer business cycles, lower macroeconomic volatility and “buffering” from central banks.

BofA’s clients were net buyers of $2.4 billion of US equities as the S&P 500 logged its worst week since March 2023, quantitative strategists led by Jill Carey Hall said Tuesday.

Eight of 11 sectors saw inflows last week — led by technology. Communication services received the second-biggest inflow, extending 23 weeks of gains. Clients ditched real estate, industrials and materials stocks.

“Expectations of easier monetary policy has created a positive backdrop for markets, but because tech stocks have become so overvalued, any market positivity is now seen more in the undervalued areas of the market, rather than the overvalued parts of the market,” said David Bahnsen at The Bahnsen Group. “ Many investors who have been focused on big tech are ignoring valuations, which is one of the most important metrics.”

Corporate Highlights:

• Tesla Inc. rallied on a bullish call from Deutsche Bank AG analysts.
• Apple Inc. lost its court fight over a €13 billion ($14.4 billion) Irish tax bill and Google lost its challenge over a €2.4 billion fine for abusing its market power, in a double boost to the European Union’s crackdown on Big Tech.
• Southwest Airlines Co. is requiring all of its pilots to undergo additional training at its Dallas base after a series of flight incidents this year triggered an enhanced safety review by US regulators.
• German carmakers are sinking deeper into a crisis undermining the future of the country’s most important industry, with BMW AG warning that profits will get hit by a costly brake problem and Volkswagen AG scrapping job protections that workers have enjoyed for three decades.

Key events this week:

• US CPI, Wednesday
• Japan PPI, Thursday
• ECB rate decision, Thursday
• US initial jobless claims, PPI, Thursday
• Eurozone industrial production, Friday
• Japan industrial production, Friday
• U. Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.45% as of 4 p.m. New York time
• The Nasdaq 100 rose 0.9%
• The Dow Jones Industrial Average fell 0.2%
• The MSCI World Index rose 0.2%
• Bloomberg Magnificent 7 Total Return Index rose 1.5%
• The Russell 2000 Index was little changed
• KBW Bank Index fell 1.8%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1027
• The British pound was little changed at $1.3086
• The Japanese yen rose 0.6% to 142.31 per dollar

Cryptocurrencies

• Bitcoin rose 1.7% to $57,974.81
• Ether rose 1.7% to $2,381.06

Bonds

• The yield on 10-year Treasuries declined six basis points to 3.64%
• Germany’s 10-year yield declined four basis points to 2.13%
• Britain’s 10-year yield declined four basis points to 3.82%

Commodities

• West Texas Intermediate crude fell 3.7% to $66.19 a barrel
• Spot gold rose 0.4% to $2,517.30 an ounce

This story was produced with the assistance of Bloomberg Automation.

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