Markets: News  

By Vivien Lou Chen and William Watts

U.S. stocks finished with a fourth consecutive day of gains on Monday, handing the S&P 500 and Nasdaq Composite their longest winning streak in two months, as traders prepare for August's inflation data to show signs of easing price gains.

How stocks traded

On Friday, the major indexes snapped a streak of three straight weekly declines. The Dow posted a 2.7% weekly rise, while the S&P 500 rose 3.7%, and the Nasdaq Composite advanced 4.1%.

What drove markets

The upbeat mood from the last handful of days carried over into Monday's session, which included positive stock-index closes in Europe.

The latest equity rebound, with the S&P 500 up 5.2% since last Tuesday's close, suggests investors now appear comfortable with the prospect of a 75 basis point interest rate rise by the Federal Reserve at the conclusion of its meeting on Sept. 21.

There is also hope among bulls that the August U.S. consumer prices report due Tuesday will show a negative reading month-on-month, helping cement expectations that inflation has peaked and the Fed is unlikely to hike borrowing costs beyond the 4% level currently priced by markets. Producer prices data will be released on Wednesday.

Read: Inflation is slowing, U.S. August CPI to show, but not enough to mollify a worried Fed

Beyond the August data, year-over-year inflation readings appear set to continue declining as commodity prices and other elements level off, said Tom Plumb, portfolio manager of the Plumb Balanced Fund, in a phone interview.

"As we see year-over-year inflation come down closer to target, I think we will have less hawkish Fedspeak and that will be seen as positive for the market," he said.

That said, predicting whether stocks are in a bear market bounce or have begun a sustaining recovery is one of the most difficult things to do, Plumb added. "We believe there's a fair probability" the market has started a recovery, he said.See:Traders see inflation falling for rest of 2022, but that likely won't end Fed rate hikes or market volatility

Market sentiment was bolstered by not just optimism about Tuesday's CPI data, but developments in Europe, where Ukraine was making progress in its counteroffensive against Russia.

"There are probably a couple of reasons to be bullish in the medium and longer term," said Peter Azzinaro, an investment executive for Convera in Chicago. "One is that there's a feeling we are getting closer to peak inflation. Positioning was probably a little overdone on the negative outcomes for inflation and we're seeing a big correction on that."

In addition, "geopolitical risks overall were on the top of mind for everybody and we are starting to see an ease on that front," he said via phone on Monday.

Jonathan Krinsky, chief market technician at BTIG, noted that technical factors have helped sentiment, but that gains may prove fragile given seasonal headwinds and if the dollar and bond yields do not continue to retreat.

"Bears fumbled on the goal line as they tried to break under 3,900 last week, but the game is not over yet. We see downside risk as we head into the seasonally weak second part of September. While the dollar and rates paused their ascent, there was no reversal and 10-year real rates actually closed at fresh 52-week highs," said Krinsky.

Monday's risk-on tone extended to currencies, where the dollar pulled further back from recent highs. The ICE U.S. Dollar Index was off 0.6%. Meanwhile, the 10-year Treasury yield was up 4 basis points at 3.36%.

Check out: Stock-market wild card: What investors need to know as Fed shrinks balance sheet at faster pace and Most investors think the next big move for the S&P 500 will involve a near 20% drop, says Deutsche Bank survey

Companies in focus

-- Jamie Chisholm contributed to this article.

Hear from Ray Dalio at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The hedge-fund pioneer has strong views on where the economy is headed.

-Vivien Lou Chen

(END) Dow Jones Newswires

September 12, 2022 16:34 ET (20:34 GMT)

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