Apparently, the stock market just needed a little bit of good news to rally after nearly falling into a bear market. Instead, it got three pieces of good news, and that’s been more than enough for a nice, Monday morning rally.
The early move higher was spurred by comments from President Joe Biden that he is considering reducing tariffs on China that had been imposed by the Trump, while also announcing a new economic agreement on Monday with 12 Indo-Pacific nations, which represent about 40% of global GDP. The pact is aimed at countering China’s influence. For now, his comment that the U.S. would defend Taiwan in the case of a mainland attack was being shrugged off.
“U.S. stocks also look [head] higher as Pres. Biden said that the U.S. would provide economic support for the Indo-Pacific Economic Framework along with several Asian partners but also made a bold statement committing to the military defense of Taiwan against any attack by China,” writes Ivan Feinseth, chief market strategist of Tigress Financial. “Pres. Biden then softened his statement saying he meant he would provide military equipment and support to Taiwan but not commit U.S. troops.”
But wait, there’s more. Reports broke that Broadcom (AVGO) was in advanced talks to acquire VMware (VMW). The Wall Street Journal said the technology companies were discussing a cash-and-stock deal that could come soon—helping boost VMware shares by 20% Monday., though Broadcom has fallen 3.4%. It seems that the deal market, which had seemed to be closing, might be reopening, especially in beaten-down software stocks. “While software multiples have come in significantly since November, the news serves as a reminder that M&A activity heats up as stocks pull back,” writes RBC analyst Matthew Hedberg.
The final piece of good news was delivered by JPMorgan Chase (JPM), which held its investor day Monday. Not only did it raise its forecast for net-interest income and stick to its 17% return on tangible equity target, but CEO Jamie Dimon sounded quite positive on the U.S. economy. That helped boost not only JPMorgan stock, which has gained 7.3%, but also the entire bank sector, with the SPDR S&P Bank ETF (KBE) up 3.1%.
The rally is a continuation of Friday’s late rally, one that saw the S&P 500 close Friday at 3901, up 0.01%, after falling as low as 3810, a level that would have meant a bear market, or 20% or more below its all-time high. The S&P 500 has to close below 3837 for it to officially be in a bear market. That doesn’t seem to be a concern, at least not for the moment. “The macro backdrop remains challenging, but a lot of bad news has been absorbed,” writes Ajay Rajadhyaksha of Barclays. “We are probably approaching a near-term bottom in risk assets.”
Investors better hope so. It’s not hard to find one-day rallies that have quickly turned into larger selloffs, and it could be a bigger issue if stocks can’t sustain their bounce from here. The S&P 500, for one, closed just off its lowest levels since March 2021, and a further drop could send it down to 3617, writes Rick Bensignor of Bensignor Investment Strategies. And with consumer staples stocks getting crushed last week, there may be just one sector standing between the S&P 500 and that bear market. “Investors dismantled normally safe Consumer Staples names,” Bensignor writes. “If they also start taking Energy names apart, we’d likely be in the final downdraft that wouldn’t begin to end until we started seeing large cap Tech and Discretionary names starting to outperform.”
No such luck. While the Technology Select Sector SPDR ETF (XLK) has gained 2% on Monday, the Consumer Discretionary Sector SPDR ETF (XLY) has risen just 0.3%, as investors continue to worry about the ability of shoppers to buy things they don’t really need. Among the S&P 500’s biggest losers: Caesars Entertainment (CZR), which has dropped 3.5%, Ralph Lauren (RL), which has fallen 3.2%, and Match Group (MTCH), which is off 2.4%. That makes sense given that oil prices remain stubbornly high—WTI crude, the U.S. benchmark is still trading near $110 a barrel—and gasoline prices have surged. For now, though, discretionary’s relative weakness is the only real blot on an otherwise fantastic day.
Still, investors will learn more as the week progresses. They’ll be monitoring the minutes from the latest Federal Reserve meeting to gauge the central bank’s next move on interest rates, which have been heading higher in an effort to cool historically high inflation and slow the economy. Friday’s release of the personal-consumption expenditures report should also give a read on how the Fed’s battle against inflation is going.
Those will go a long way in determining whether Monday’s rally is the beginning of a sustainable rally—or just a blip before the bear finally arrives.
Here are other stocks on the move Monday:
GameStop (ticker: GME) is little changed after the company launched a wallet for cryptocurrencies and NFTs.
Zoom Video (ZM) has slipped 0.8% ahead of the company’s fiscal first-quarter earnings report, scheduled for after the closing bell Monday. Shares of the videoconferencing company have lost all their Covid-era gains, with the stock declining around 50% so far this year, and more than 70% over the last 12 months.
Apple (AAPL) has risen 3.5% Monday. The Wall Street Journal reported over the weekend that the tech giant has begun telling some of its contract manufacturers that it was looking to India and Vietnam to boost production, seeking to reduce its dependence on China as Beijing’s strict anti-Covid policy has caused supply-chain bottlenecks.
Autodesk (ADSK) has fallen 4.5% after getting cut to Hold from Buy at Deutsche Bank.