Wall Street maintained a spring in its step Monday as renewed hopes for Federal Reserve interest rate cuts kept investors in a buoyant mood and sent the S&P 500® index (SPX) up a third straight trading session to its highest close in almost four weeks. The Nasdaq Composite® ($COMP) also neared a four-week high.
Broad-based buying continued in the wake of last Friday's Labor Department Nonfarm Payrolls report, whose combination of weaker job gains and slower wage growth in April offered encouraging signs on inflation that could pave the way for Fed cuts later this year. Earlier last week, Fed Chair Jerome Powell said further rate hikes were "unlikely."
Among companies, shares of Walt Disney (DIS) gained 2.5% ahead of the company's quarterly results, expected before Tuesday's open. Disney is up 29% so far this year, making it the top performer in the Dow Jones Industrial Average® ($DJI). Apple (AAPL) fell 0.9% following weekend reports Warren Buffett's Berkshire Hathaway (BRK/A) slashed its stake in the iPhone maker by about 13%.
"Though the April jobs report was a bit weaker than expected, payroll growth was still quite healthy at 175,000, and while the unemployment rate moved up a bit, at 3.9% it's still quite low relative to history," Schwab Center for Financial Research analysts said in report. "While there are still some cracks in the labor market's foundation, there are still many things to cheer," according to the analysts.
Here's where the major benchmarks ended:
• The S&P 500 index climbed 52.95 points (1.0%) to 5,180.74; the Dow Jones Industrial Average gained 176.59 points (0.5%) to 38,852.27; the Nasdaq Composite advanced 192.92 points (1.2%) to 16,349.25.
• The 10-year Treasury note yield (TNX) fell about 1 basis point to 4.491%.
• The Cboe Volatility Index® (VIX) was little changed at 13.48.
Semiconductors were among the strongest performers Monday behind Micron Technology (MU), whose shares rallied 4.7% after Robert W. Baird upgraded the chipmaker to "outperform" from "neutral." Micron Technology was the top gainer in the Philadelphia Semiconductor Index (SOX), which advanced 2.2% to near a four-week high.
Small-cap stocks also got out of the gate strong this week. The Russell 2000® Index (RUT) gained 1.2% to end at a four-week high but is still up just 1.7% for the year, while the S&P 500 has gained 8.6%.
Stocks on the move
The following companies had stock price moves driven by analyst ratings, quarterly earnings, or other news:
• Berkshire Hathaway (BRK/A) added 1.0% after Warren Buffett's holding company reported a 39% year-over-year surge in quarterly operating income and almost $200 billion in cash holdings over the weekend.
• Coinbase Global (COIN) gained 1.7% after Barclays (BCS) raised its price target for the cryptocurrency platform, which reported stronger-than-expected earnings last week.
• Paramount Global (PARA) jumped 3.1% on reports the media company began formal acquisition negotiations with a group led by Sony Pictures Entertainment.
• Spirit Airlines (SAVE) tumbled 9.7% after the discount carrier reported a larger-than-expected first-quarter loss and provided softer revenue guidance for the current quarter.
• Tyson Foods (TSN) sank 5.7% after the top U.S. meat processor's quarterly revenue missed expectations, though earnings per share (EPS) exceeded forecasts.
• United States Steel (X) rose 4.3% after Morgan Stanley (MS) upgraded the stock to "overweight" from "equal weight," saying it believes the company "is nearing the end of its transformation into a more flexible steelmaker."
In addition to Disney, Tuesday's earnings lineup includes two big oil and gas companies: BP p.l.c. (BP) and Occidental Petroleum (OXY), along with luxury automaker Ferrari N.V. (RACE), McKesson (MCK), Suncor Energy (SU), and UBS AG (UBS).
The profit trend for S&P 500 index companies has improved as earnings season progressed, thanks in part to strong results from companies including Apple, Amgen (AMGN), and Amazon (AMZN). Last week's results prompted researcher FactSet to boost its first-quarter EPS growth forecast to 5%, up from 3.4% a week earlier. About 80% of S&P 500 companies have reported so far, and 77% have reported a positive EPS surprise. Only 61% have exceeded revenue expectations, however.
Payrolls report sparks sentiment shift
Friday's jobs report provided a welcome antidote for investors increasingly rattled by a three-month string of hotter-than-expected inflation gauges, including the Consumer Price Index (CPI).
Inflation is apparently stalling after steadily declining most of 2023, which forced investors to drastically rein in expectations the Fed would make multiple reductions to its benchmark short-term funds rate. The Fed' most recent hike rate was last July, lifting it to a two-decade high of 5.25% to 5.5%.
However, "a big shift in sentiment has taken place because of the April employment report," Schwab analysts led by Kathy Jones, chief fixed income strategist, said in a report.
Based on the report, it appears that the long-awaited "rebalancing" of the labor market is happening, Jones wrote. "Nonfarm payrolls and wage growth slowed, suggesting that demand for workers is starting to cool. In addition, aggregate hours worked declined, a signal that demand is likely softening. Combining fewer hours worked with slower wage growth results in less income to consumers. The less income to consumers, the less spending there is likely to be in the economy."
The Labor Department said nonfarm payrolls increased 175,000, during April, down from an upwardly revised 315,000 in March and the smallest monthly increase since last October. Also, average hourly earnings rose 0.2%, below expectations for a 0.3% gain.
Jones noted the jobs report "produced a much-needed rally in the bond market" that sent Treasury yields down across the curve.
"The market is back to pricing in two rate cuts this year after nearly eliminating hopes for any move," Jones said. "We still have two rate cuts of 25 basis points each penciled in for this year. The timing is up in the air, but we expect growth and inflation to subside in the second half of 2024, opening the door to Fed easing."
Late Monday, traders priced nearly 71% odds of two quarter-point rate cuts by the Fed by the end of 2024, based on the CME FedWatch Tool.
Traders also pegged 91% odds the fed funds target will be held unchanged following the FOMC's June 11 – 12 meeting and a 69% chance for no change following the committee's July meeting, based on the FedWatch Tool.
In economic news Monday, lenders remained reluctant to provide businesses and households credit in the first quarter, according to the April Senior Loan Officer Opinion Survey on Bank Lending Practices from the Fed.
"For loans to businesses, survey respondents reported on balance, tighter standards and weaker demand for commercial and industrial loans to firms of all sizes," the Fed said. "For loans to households, banks reported that lending standards tightened across some categories of residential real estate loans while remaining unchanged for others on balance."
Also, demand weakened for all residential real estate loan categories. The report could suggest underlying softness in the economy, but markets didn't appear to respond much in Monday's afternoon trading.
On Friday, the University of Michigan reports its initial Index of Consumer Sentiment for May. Analysts expect the index to decline slightly from 77.2 in April.