U.S. stocks kicked off the week higher on Monday as optimism persisted that the Federal Reserve is getting close to ending its aggressive interest rate hikes.
The tech-heavy Nasdaq Composite led the gains, rising 0.3% in mid-morning trading. The broader S&P 500 also edged up over 0.1%, while the blue-chip Dow Jones Industrial Average traded flat.
Friday’s slower-than-expected jobs growth and cooling wage inflation cemented hopes on Wall Street that the Fed’s campaign of rate hikes is nearing its conclusion. Investors are looking for confirmation from Fed officials scheduled to speak this week, including Chair Jerome Powell who has two appearances on his calendar.
Market Optimism Could Be Overdone
Some strategists have cautioned that the market’s optimism may be premature.
“The stock market comeback on Friday looks more like a bear market rally rather than the start of a sustained upswing,” said Mike Wilson, chief U.S. equity strategist at Morgan Stanley.
Wilson warned investors to brace for more volatility in equities ahead.
Yields Climb as Traders Bet on Fed Pivot
Alongside stocks, Treasury yields also climbed on Monday as traders increased bets of a Fed pivot.
The yield on the benchmark 10-year Treasury note rose 7 basis points to around 4.63%, extending a surge from Friday.
Shorter-dated yields, which are more sensitive to interest rate changes, led the gains. The 2-year Treasury yield jumped 10 basis points to trade above 4.70%.
Earnings, Economic Calendar Quiet
Aside from Fed speakers, the market has a relatively quiet calendar this week.
The economic data docket is light. On the earnings front, the highlight will be Disney’s quarterly results due out on Wednesday.
So far this earnings season, over 70% of S&P 500 companies have exceeded profit estimates, according to Refinitiv data. However, some firms have provided gloomy forecasts, fanning fears of a recession.
Oil Extends Gains on OPEC+ Supply Cut
Oil prices extended gains Monday after Saudi Arabia and Russia confirmed they will continue with their additional voluntary output cuts.
Futures for West Texas Intermediate crude, the U.S. oil benchmark, rose over 1% to just under $82 a barrel. Global benchmark Brent crude futures also climbed nearly 1% to trade above $85 per barrel.
The OPEC+ group, which includes Russia and Saudi Arabia, agreed last week to stick with their 2 million barrels per day production cut until the end of 2023.
Analysts say the supply reduction may not be enough to balance the market amid uncertainties over demand from top importer China.