S&P 500 Gains 0.4%, Hits Fresh Three-month Highs Above 4,300 Despite China Growth Worries

Key Points

• Rate-sensitive big tech/growth stocks performed well on Monday amid a drop in US yields, despite China growth concerns.
• The S&P 500 hit fresh three-month highs above 4,300, with most S&P 500 GICS sectors rallying.
• Investors are focused on Wednesday’s US Retail Sales data and FOMC minutes plus earnings from heavyweight retailers like Walmart.

Indices Rally Despite China Growth Worries

A dip in US treasury yields which delivered a boost to rate-sensitive big tech/growth stocks shielded major US equity indices from concerns about the outlook for global economic growth on Monday in wake of ugly July economic activity data out of China during the overnight session. The downbeat Chinese economic data prompted China’s central bank, the People’s Bank of China, to ease financial conditions via a surprise rate cut.

A slowdown in growth in China could help snap global inflationary pressures that have contributed to forcing the Fed into aggressive monetary tightening this year, as well as potentially resulting in a slowdown in US growth that could deter significant further tightening. Analysts also said that US equities also continued to derive support from recent data that has 1) suggested that US price pressures have now peaked and 2) pointed to a US economy that was still growing in early Q3, as well as 3) recent better than expected corporate earnings as supportive for equity prices.

The S&P 500 ended Monday’s session with gains of about 0.4%, with the index rising above the 4,300 level for the first time since 4 May and taking its run of gains since the July lows in the low-3,700s to around 15%. The Nasdaq 100 index gained 0.75% to hit its highest level since late-April in the 13,600s, while the Dow Jones Industrial Average gained 0.45% to hit its 200-Day Moving Average for the first time since 21 April.

Investors Brace for US Retail Sales Data, Heavyweight Retailor Earnings

Out of the eleven S&P 500 GICS sectors, Energy was the worst performer, losing 2.0% amid a sharp drop in oil prices on China demand concerns. Materials was the only other sector in the red amid a broad drop in industrial metals prices. All the other sectors saw gains, with the best performers Consumer Staples (+1.05%), Consumer Discretionary (+0.6%) and Information Technology (+0.6%). Of the large-cap stocks, Tesla was the best performer, adding 3.1%.

The retail sector will be in focus this week amid 1) earnings from the likes of heavyweights including Walmart, Target and Home Depot and 2) the release of US Retail Sales figures for July on Wednesday. The minutes from the Fed’s July policy meeting are also set for release on Wednesday, amid a smattering of other tier 2 data releases this week, such as August regional PMIs that will give an early insight into how US growth is faring this month.