The global stock market is poised for more gains, fueled by positive momentum and the impact of China’s bold move to stimulate its economy. Following a record-breaking close on Monday, index futures are showing modest gains in early Tuesday trading.
China, the world’s second-largest economy, has announced a series of stimulatory measures, sending commodity prices soaring. This move is particularly significant considering China’s immense appetite for commodities as a major manufacturing hub. The nation’s growth has a direct impact on the global economy, often referred to as “the world’s factory.”
In the U.S., traders are anticipating key economic data releases. These include a speech by a Federal Reserve official, a consumer confidence reading, and several housing market reports. While momentum suggests continued gains, the market’s recent overbought levels could introduce a degree of caution. This is especially true ahead of crucial inflation data expected later this week and additional labor market data scheduled for the following week.
Futures markets are showing positive signs, with the Nasdaq 100, S&P 500, Dow Jones Industrial Average, and Russell 2000 all trading higher in pre-market trading. The SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ ETF (QQQ) are also experiencing gains.
The previous trading session saw modest gains in U.S. stocks, although volatility characterized the day. Market participants digested comments from Fed officials and reacted to S&P Global private sector activity readings, which revealed a larger-than-expected contraction in the manufacturing sector. Minneapolis Fed President Neel Kashkari indicated his preference for a slowdown in rate cuts.
The major indices initially rose, but the Dow Industrials and the Nasdaq Composite dipped below the unchanged line mid-session before rebounding. The Dow set new intraday and closing highs, while the S&P 500 Index, despite the mid-session volatility, remained in the green throughout the session and closed at a fresh record. Among S&P 500 sectors, real estate, utilities, materials, energy, and consumer discretionary stocks performed strongly. Conversely, communication services, healthcare, and IT stocks experienced modest weakness.
Analysts are offering their insights on the current market conditions. Morgan Stanley’s U.S. Equity Strategist Mike Wilson advocates for a neutral stance on defensive versus cyclical stocks, citing extended valuations in defensive sectors. He recommends taking profits on recent outperformance in defensive stocks until the next labor report is released, as this data could provide clarity on the market’s direction.
WisdomTree Senior Economist and Wharton Professor Emeritus Jeremy Siegel highlights stretched valuations across numerous sectors, particularly in the technology sector and AI-driven companies. This reflects market expectations of substantial growth fueled by technological advancements. Siegel emphasizes the importance of distinguishing between companies genuinely creating value through AI innovation and those with valuations inflated by speculation. He sees significant rate cuts supporting small-cap companies, particularly those with short-term borrowing rates, given their susceptibility to the Fed’s aggressive rate hikes and their relatively low valuations in the U.S. market.
Looking ahead, traders will be watching for key economic data releases, including a speech by Federal Reserve Governor Michelle Bowman, house price surveys from S&P/Case-Shiller and the Federal House Finance Agency, and the September consumer confidence index from the Conference Board. Additionally, the Treasury will auction two-year notes.
Several companies are scheduled to release their quarterly results before the market opens, including Liberty Broadband Corporation (LBRDA), Snowflake Inc. (SNOW), Hawaiian Electric Industries, Inc. (HE), AutoZone, Inc. (AZO), and THOR Industries, Inc. (THO). After the market closes, KB Home (KBH), Progress Software Corporation (PRGS), Stitch Fix, Inc. (SFIX), and Worthington Enterprises, Inc. (WOR) will report their earnings.
Commodities, including oil and gold, are experiencing upward momentum, with gold reaching record highs. This is driven by China’s recent announcement of stimulatory measures. Bitcoin is holding steady around the $63.5K level. The 10-year Treasury note has increased to 3.793%.
Asian markets, while mixed, saw strong performances in China. The Shanghai Composite Index surged over 4% on stimulus hopes, and this positivity spilled over into the Hong Kong market. This marked the Chinese stock market gauge’s largest single-day gain in over four years. The People’s Bank of China announced a series of measures to revitalize domestic growth, particularly hampered by a struggling property sector. Pan Gongsheng, the central bank chief, highlighted plans to cut the reserve requirement ratio by 0.5 percentage points in the near future. Additionally, he hinted at reducing the policy interest rate and lowering the market benchmark interest rate to boost growth. The Taiwanese and South Korean markets also experienced gains, while the Australian market retreated following a pause decision by the central bank. European markets opened higher on Tuesday.
