Market Snapshot: U.S. stocks struggle for direction after best month for S&P 500, Dow since November 2020

What’s driving the market

Stocks erased early losses to trade into positive territory after the Institute for Supply Management reported that its closely followed manufacturing gauge dipped to 52.8% in July from a reading of 53% a month earlier.

Economists polled by The Wall Street Journal had expected the index to come in at 52.1%. While any number above 50% signifies growth, the latest reading was the weakest since June 2020.

Big gains for stock indexes last week capped a strong July bounce fueled by earnings that have so far been better than feared. Investors also cheered what they saw as signals the Federal Reserve might not have to raise rates as aggressively as previously expected as the economy slows.

“Although the activity outlook remains challenging, we believe that the risk-reward for equities is looking more attractive as we move through 2H,” said JPMorgan Chase & Co.’s Marko Kolanovic, Nikolaos Panigirtzoglou and others in a note. They cited the S&P 500’s “second sharpest P/E (price-to-earnings ratio) de-rating of the past 30 [years], exceeding the typical compression seen during prior recessions,” and said that “while the current equity multiple is in-line with the historical median, we believe it is better than fairly valued given the shift in industry mix to higher quality companies.”

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On Friday, data showed that higher gasoline prices led the personal-consumption-expenditures price index up 1% in June, exceeding forecasts of a 0.9% advance. June inflation measured by the PCE index showed the cost of living over the past year climbed 6.8%, the highest rate since January 1982.

Last Wednesday, the Fed ended its two-day policy meeting with another 75-basis-point rate hike in an effort to curb soaring inflation. Fed Chair Jerome Powell said another 75 basis-point move could be appropriate in September, but the Fed would take a data-dependent, meeting-by-meeting approach to decisions.

Powell also warned that the economy would need to see a period of below-trend growth to rein in red-hot inflation and that the path to a so-called soft landing for the economy continued to narrow.

Skeptics contend bulls, in looking for a so-called pivot from the Fed, were misreading the message from central bankers.

Federal Reserve Bank of Minneapolis President Neel Kashkari said on Sunday that the central bank is still committed to its goal of 2% inflation. However, “we are a long way away” from that goal, he said in an interview on CBS News’ “Face the Nation.”

In equity markets, “there were few signs of caution about how Fed speakers and the upcoming data might affect the narrative as generally impressive earnings results in both America and Europe gave the bulls the upper hand, while the retreat in yields provided additional support,” said Raffi Boyadjian, lead investment analyst at XM, in a note.

“Investors run the risk of reading too much into Powell’s somewhat toned down hawkish rhetoric last week and have brushed off hawkish remarks by the Fed’s most dovish policy maker, Neel Kashkari, on Sunday, likely because he is not a voting FOMC member this year,” Boyadjian said.

More than 170 S&P 500 companies reported results last week, while more than 150 are slated to report this week. Just two components of the Dow were slated to report, with Caterpillar Inc.
CAT,
-1.79%
due on Tuesday and Amgen Inc.
AMGN,
-0.25%
set for Thursday.

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Shares of Boeing Co. BA rose 7.5% to lead Dow gainers after the aerospace and defense giant reportedly cleared a hurdle with the Federal Aviation Administration that could allow it to resume deliveries of its 787 airliner. The FAA said it would approve Boeing’s process for validating fixes to each 787 plane before they are delivered to customers, according to an Associated Press report.

Separately, The Wall Street Journal reported that Boeing’s defense manufacturing plants will vote on Wednesday on a labor contract proposal, which temporarily delays a strike that was scheduled to begin as soon as Monday.

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Chinese manufacturing activity unexpectedly contracted in July, as Beijing’s COVID-19 restrictions and weak demand undercut hopes for a more robust economic revival. The official manufacturing purchasing managers index pulled back to 49.0 in July from 50.2 in June, China’s National Bureau of Statistics said Sunday. The result left the index below the 50 level that separates expansion from contraction and short of the median forecast of 50.3 among economists polled by The Wall Street Journal.

In other data, spending on construction projects fell 1.1% in June, the Commerce Department reported Monday. Economists polled by The Wall Street Journal had expected a 0.4% increase.

Companies in focus

• U.S.-listed shares of Nio Inc.
  NIO,
  +2.23%
  were up 2.8% after the China-based electric vehicle maker reported deliveries rose in July from a year ago to mark a third-straight monthly increase.

• Alibaba Group Holding Ltd.
  BABA,
  -0.58%
  acknowledged in a Monday filing that it has been identified by the Securities and Exchange Commission as a foreign company whose auditing paperwork couldn’t be fully inspected by the Public Company Accounting Oversight Board, though the company said it would work to stay listed on the New York Stock Exchange. Shares were down 0.7% after a drop of around 11% on Friday.

• Shares of Perkin Elmer Inc.
  PKI,
  +5.80%
  jumped 7.5% after the disease diagnosis company announced an agreement to sell its Applied, Food and Enterprise Services businesses for $2.45 billion in cash to private-equity firm New Mountain Capital.

• Automotive oil, additives and lubricant maker Valvoline Inc.
  VVV,
  -1.15%
  said Monday it has reached an agreement with Aramco
  2222,
  -0.13%
  to sell its global products business for $2.65 billion in cash. Valvoline shares slipped 1.3%.

Other assets

• The yield on the 10-year Treasury note
  TMUBMUSD10Y,
  2.607%
  fell 3 basis points to 2.608%. Yields and debt prices move opposite each other.

• The ICE U.S. Dollar Index
  DXY,
  -0.59%,
  a measure of the currency against a basket of six major rivals, fell 0.6%.

• The U.S. oil benchmark
  CL.1,
  -4.97%
  dropped 5.2% to $93.51 a barrel, while gold futures
  GC00,
  +0.42%
  were up 0.2% at $1,785.80 an ounce.

• Bitcoin
  BTCUSD,
  -2.79%
  was down 2.5% near $23,221.

• The Stoxx Europe 600
  SXXP,
  -0.19%
  finished down by 0.2%, while London’s FTSE 100
  UKX,
  -0.13%
  closed lower by 0.1%.

• The Shanghai Composite
  SHCOMP,
  +0.21%
  ended 0.2% higher, while the Hang Seng Index
  HSI,
  +0.05%
  eked out a fractional gain and Japan’s Nikkei 225
  NIK,
  +0.69%
  advanced 0.7%.