U.S. equity futures were little changed on Monday as investors paused following a powerful week for Wall Street, with upcoming inflation figures expected to provide the next major test for markets and Federal Reserve interest-rate expectations.
Monday offers relatively few major U.S. economic releases, leaving traders to digest the recent rally that carried the S&P 500 to another record closing level on Friday.
The focus is increasingly shifting towards inflation data scheduled for the coming days. The figures take on added importance after Friday’s unexpectedly weak employment report raised questions about the strength of the U.S. economy while simultaneously reducing expectations for further monetary tightening.
“Consensus forecasts point to a modest easing in both headline and core CPI, which, if realized, would reinforce the view that the Fed can afford to remain patient,” said Daniela Hathorn, Senior Market Analyst at Capital.com.
She added, “That would likely keep downward pressure on Treasury yields and provide further support for risk assets.”
S&P 500 reaches another record as Nasdaq rallies
Wall Street ended Friday firmly higher, extending an early advance throughout the session as investors responded positively to the implications of the weaker employment figures.
The Nasdaq was the strongest of the major benchmarks, climbing 342.26 points, or 1.3 percent, to 26,690.62.
The S&P 500 gained 47.68 points, or 0.6 percent, to finish at a record 7,757.64, while the Dow Jones Industrial Average rose 151.83 points, or 0.3 percent, to 54,036.93.
Friday’s gains completed an impressive week for U.S. equities. The Nasdaq surged 5.2 percent, the S&P 500 advanced 3.6 percent and the Dow climbed 3 percent.
Surprise payroll decline reduces fears of another Fed hike
Investor sentiment improved after the Labor Department revealed that non-farm payrolls unexpectedly declined by 23,000 in July.
June’s employment increase was also revised substantially lower to 20,000 jobs from the 57,000 initially reported.
The July figure contrasted sharply with economists’ expectations for an increase of 88,000 jobs, providing further evidence that momentum in the U.S. labour market may be weakening.
For equity investors, however, the disappointing employment numbers also carried a potentially positive implication by reducing the perceived likelihood of another Federal Reserve rate increase next month.
The unemployment rate unexpectedly improved, edging down to 4.1 percent from 4.2 percent in June, compared with expectations for an unchanged reading.
Gold miners and technology shares outperform
Several market sectors benefited strongly from Friday’s shift in interest-rate expectations.
Gold mining stocks rallied alongside higher bullion prices, sending the NYSE Arca Gold Bugs Index up 7.4 percent to its highest closing level in more than two months.
Computer hardware companies were another standout, with the NYSE Arca Computer Hardware Index surging 4.4 percent.
Biotechnology stocks also attracted significant buying interest, lifting the NYSE Arca Biotechnology Index by 3.2 percent.
Semiconductor, housing and software shares recorded sizeable gains as well, contributing to the broad advance across Wall Street.
The question facing investors at the beginning of the new week is whether those gains can be sustained. With major indices already coming off a strong rally and the S&P 500 sitting at record levels, the next inflation readings could determine whether expectations for a more patient Federal Reserve provide another catalyst for stocks or prompt investors to reassess the recent advance.
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