Market Snapshot: U.S. stocks finish higher for fourth straight session ahead of inflation reading for August

What’s driving markets

The positive mood from the last several days was continuing into the new session. The risk-on tone extended to currencies, where the dollar pulled further back from recent highs.

The latest equity rebound, with the S&P 500 up 4.1% since last Tuesday’s close, suggests investors now appear comfortable with the prospect of a 75 basis point interest rate rise by the Federal Reserve at the conclusion of its meeting on September 21.

There is also hope among bulls that the August U.S. consumer prices report due Tuesday will show a negative reading month-on-month, helping cement expectations that inflation has peaked and the Fed is unlikely to hike borrowing costs beyond the 4% level currently priced by markets. Producer prices data will be released on Wednesday.

Beyond the August data, year-over-year inflation readings appear set to continue declining as commodity prices and other elements level off, said Tom Plumb, portfolio manager of the Plumb Balanced Fund, in a phone interview.

“As we see year-over-year inflation come down closer to target, I think we will have less hawkish Fedspeak and that will be seen as positive for the market,” he said.

That said, predicting whether stocks are in a bear market bounce or have begun a sustaining recovery is one of the most difficult things to predict, Plumb added. “We believe there’s a fair probability” the market has started a recovery, he said.

Near-term market direction could depend on the Tuesday reading.

“If the data is soft enough, or ideally softer than expected, the equities will likely continue pushing higher this week as well. If, however, the data is not as soft as expected, or worse, if we see a higher figure than last month’s read, then last week’s gains in equities will likely be quickly given back,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank in a morning note.

Jonathan Krinsky, chief market technician at BTIG, noted that technical factors had helped sentiment but that gains may prove fragile given seasonal headwinds and if the dollar and bond yields did not continue to retreat.

“Bears fumbled on the goal line as they tried to break under 3,900 last week, but the game is not over yet. We see downside risk as we head into the seasonally weak second part of September. While the dollar and rates paused their ascent, there was no reversal and 10-year real rates actually closed at fresh 52-week highs,” said Krinsky.

The U.S. 10-year Treasury yield
TMUBMUSD10Y,
3.289%
was down 4.3 basis points to 3.276% and the ICE U.S. Dollar Index
DXY,
-0.76%
was off 0.8%.

Companies in focus

Twitter Inc.
TWTR,
-1.77%
on Monday said Elon Musk’s latest argument for terminating his $44 billion acquisition of the social-media platform was invalid. Twitter shares fell 2.1%.

Activist investor Dan Loeb on Sunday morning signaled on Twitter that he is backing off his push to persuade Walt Disney Co.
DIS,
+0.60%
to spin off its popular sports television network ESPN. Disney shares rose 0.3%.