Stocks Gain, Bonds Steady in Holiday-Thinned Trade: Markets Wrap

(Bloomberg) — Stocks gained and bonds steadied after benign US inflation data reinforced expectations that the Federal Reserve will cut interest rates this year. Trading volumes were thin with the US and China shut for public holidays.

Futures on the S&P 500 added 0.4% and Europe’s Stoxx 600 index rose 0.4% as banking shares rebounded from a sharp decline last week. NatWest Group Plc climbed 4.3% after Citigroup Inc. raised its price target on the UK lender. German bunds and Treasury futures were steady after US yields touched the lowest since December on Friday.

With the US observing the Presidents’ Day holiday and mainland China’s markets closed for Lunar New Year holidays, trading was muted on Monday. Still, the path of US interest rates remains in focus following Friday’s slower-than-expected US inflation print as traders fully price a Fed cut in July and the strong chance of a move in June.

“The backdrop for equities is positive post CPI,” said Andrea Gabellone, head of global equities at KBC Securities. At the same time, there could be “more dispersion ahead as sentiment around key AI-exposed sectors is still very critical,” he added.

That sentiment was echoed by other strategists seeking to distinguish between AI losers and winners.

A JPMorgan Chase & Co. team led by Mislav Matejka urged caution on stocks at risk of AI-driven “cannibalization,” including software, business services and media companies.

Firms are developing tools to capitalize on the divergence. Goldman Sachs Group Inc. launched a new basket of software stocks that goes long firms that will benefit from AI adoption, while shorting the companies whose workflows could be replaced.

With AI disruption rippling through markets, a lot will come down to earnings resilience, in particular in the US.

“When you look at the current earnings season, the companies are showing 13% of growth,” Nataliia Lipikhina, head of EMEA equity strategy at JPMorgan, told Bloomberg TV. “Overall, this is the reason why we continue to be positive on the S&P.”

Later this week, traders will be watching for ADP private payrolls numbers on Tuesday and the minutes from the Fed’s January meeting on Wednesday for a fresh read on the economy.

What Bloomberg strategists say…

Global equities are likely to retreat as the fracturing AI outlook drags down megatechs and sectors vulnerable to disruptions. Stock declines will help bonds extend their rallies.

— Garfield Reynolds, MLIV Team Leader. For full analysis, click here.

Elsewhere, gold dipped below $5,000 an ounce, as traders booked profits from a gain in the previous session.

The dollar was steady. Bitcoin traded around $69,275 after posting its fourth consecutive weekly loss, with the cryptocurrency struggling to find clear direction as a weekend rally fizzled.

Corporate Highlights:

NatWest rose the most since October. Citi analyst Andrew Coombs raised his price target on the UK bank to a Street-high and upped his estimates for pretax profit and earnings-per-share to account for the acquisition of wealth manager Evelyn Partners and higher net interest income. Orsted A/S advanced as much as 4% after an upgrade from analysts at Kepler Cheuvreux, who were positive on the wind turbines operator’s outlook despite ongoing uncertainty for the industry in the US. Warner Bros Discovery Inc. is considering reopening sale talks with rival Hollywood studio Paramount Skydance Corp. after receiving its hostile suitor’s most recent amended offer, people with knowledge of the matter said. Volkswagen plans to cut costs by 20% by the end of 2028, Manager Magazin reported, without saying where it got the information. A group led by Macquarie Asset Management will buy Qube Holdings Ltd. in a deal worth around A$11.7 billion ($8.3 billion). Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.4% as of 7:32 a.m. New York time Nasdaq 100 futures rose 0.2% Futures on the Dow Jones Industrial Average rose 0.4% The Stoxx Europe 600 rose 0.3% The MSCI World Index was little changed Currencies

The Bloomberg Dollar Spot Index rose 0.1% The euro fell 0.1% to $1.1856 The British pound was little changed at $1.3645 The Japanese yen fell 0.4% to 153.35 per dollar Cryptocurrencies

Bitcoin rose 0.7% to $69,308.79 Ether rose 1.5% to $1,987.66 Bonds

The yield on 10-year Treasuries was little changed at 4.05% Germany’s 10-year yield was little changed at 2.75% Britain’s 10-year yield declined two basis points to 4.40% Commodities

West Texas Intermediate crude was little changed Spot gold fell 0.9% to $4,997.73 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson.

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