Stock Rally Takes a Breather Near All-Time Highs: Markets Wrap

(Bloomberg) — Stocks struggled to make headway after a rally that drove the market closer to all-time highs, wiping out its early August losses.

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Equities edged lower on Tuesday after briefly rising for a ninth consecutive session — in what would be the S&P 500’s its longest winning streak since 2004. Energy and tech shares led losses, while defensive groups outperformed.

Stocks have seen bullish flows as investor sentiment improved following upbeat economic data last week, according to Citigroup Inc. strategists led by Chris Montagu. They said about $16 billion in new long bets have been added to S&P 500 futures, driving positioning back to increasingly extended levels. Aside from flows, the recent rally was also fueled by bets the Federal Reserve will signal it’s getting closer to cutting rates.

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“No market moves in a straight line, so it would be healthy if the market took a breather for a day or two at some point soon,” said Matt Maley at Miller Tabak.

Aside from flows, the recent rally was also fueled by bets the Federal Reserve will signal it’s getting closer to cutting rates. Just days ahead of Powell’s speech in Jackson Hole, key US payrolls revisions is poised to capture Wall Street’s attention.

Goldman Sachs Group Inc. and Wells Fargo & Co. economists expect the government’s preliminary benchmark revisions on Wednesday to show payrolls growth in the year through March was at least 600,000 weaker than currently estimated. While JPMorgan Chase & Co. forecasters see a decline of about 360,000, Goldman indicates it could be as large as a million.

“Markets, having recently experienced a growth scare that led to concerns that the Fed is behind the curve, will be monitoring Wednesday’s release of the benchmark revision to see if the market’s initial reaction was, in fact, correct,” said Quincy Krosby at LPL Financial.

The S&P 500 hovered near 5,600. Palo Alto Networks Inc. climbed on a bullish outlook and after boosting its buyback program. Lowe’s Cos. lowered its full-year guidance as the frozen housing market keeps consumers on the sidelines for big purchases.

Treasury 10-year yields declined four basis points to 3.83%. The loonie trailed most of its major peers as inflation in Canada decelerated, cementing rate-cut wagers. Oil steadied, with traders monitoring developments in cease-fire talks for the war in Gaza.

“What may matter more than whether the Fed cuts 25 basis points or 50 basis points in September is the longer-term trajectory of rates,” said Jason Pride and Michael Reynolds at Glenmede. “Given the fact that inflation looks to still be on its disinflationary course, investors should be listening for signs that the recent rise in the unemployment rate is changing their calculus.”

To Anthony Saglimbene at Ameriprise, continued progress on inflation, moderating but still healthy labor conditions, and economic updates that point to firm consumer trends likely allow the Fed to comfortably begin cutting its policy rate in September.

From a monetary policy perspective, whether it’s a 25 or 50-basis point cut next month isn’t really that important, he noted. What is important — and not lost on investors over the last week or so — is that updates on labor, services activity, inflation, and the consumer all point to a still healthy economic environment, but one that allows the Fed room to start easing monetary policy.

“This is how a soft landing starts, in our view. Of course, there is no guarantee the Fed will ultimately pull it off, but you need the conditions in place to start, and it looks like we finally have those conditions in place today, he said.

Corporate Highlights:

Johnson & Johnson will pay as much $1.7 billion for V-Wave Ltd., bolstering its development efforts to treat heart failure as it goes deeper into medical technology.
Kroger Co. is tapping the US investment-grade market on Tuesday to help fund its acquisition of fellow grocer Albertsons Cos. in what could be one of the biggest corporate bond deals of the year.
Patients taking Eli Lilly & Co.’s blockbuster weight-loss shot were 94% less likely to develop diabetes in a three-year study that illuminates the long-term health benefits of treating obesity.
Alaska Air Group Inc. and Hawaiian Holdings Inc. are one step closer to finalizing their $1.9 billion merger after the US Justice Department decided against challenging it.
Boeing Co. has paused flight tests of its 777X jetliner while it inspects the four-aircraft fleet for cracking in a crucial structural component that connects the hulking General Electric Co. engines to the plane’s wings.
Edgar Bronfman Jr. has formally submitted a $4.3 billion bid to take control of Paramount Global and quash an existing offer from Skydance Media, according to a person familiar with the proposal.

Key events this week:

US Fed minutes, BLS preliminary annual payrolls revision, Wednesday
Eurozone HCOB PMI, consumer confidence, Thursday
ECB publishes account of July rate decision, Thursday
US initial jobless claims, existing home sales, S&P Global PMI, Thursday
Japan CPI, Friday
Bank of Japan Governor Kazuo Ueda to attend special session at Japan’s parliament to discuss July 31 rate hike, Friday
US new home sales, Friday
Fed Chair Jerome Powell speaks at Jackson Hole symposium in Wyoming, Friday