Stocks climbed to new records on Monday as Wall Street anticipates a week filled with potentially market-moving events. The S&P 500 rose by 1.2%, the Dow Jones added 337 points, or 0.7%, and the Nasdaq composite jumped 1.9%. Each index set an all-time high for the second consecutive day. Meanwhile, the Australian share market is projected to decline, with futures at 5:04 am AEDT indicating a loss of 39 points, or 0.4%, at the opening. The ASX had added 0.4% on Monday, and the Australian dollar was trading at US65.54¢ at 8:15 am AEDT.
Stock markets in Asia also rallied ahead of a crucial meeting on Thursday between the United States and China. The hope is that these talks could ease rising tensions between the world’s two largest economies, potentially allowing the global economy to continue its momentum. US Treasury Secretary Scott Bessent mentioned that there is “a framework” for US President Donald Trump and Chinese leader Xi Jinping to discuss, while President Trump expressed optimism, stating, “We feel good” about resolving issues with China.
Market Rally and Economic Expectations
This development follows a remarkable rally in the US stock market, which has seen the S&P 500 soar by an impressive 38% since hitting a low in April. At that time, concerns about Trump’s tariffs on China and other countries were at their peak. Besides hopes for easing trade tensions, the rally has also been supported by expectations for several other factors to align.
One key expectation is that the Federal Reserve will continue to cut interest rates to stimulate the slowing job market. The Fed’s next announcement on interest rates is scheduled for Wednesday, and traders almost unanimously expect a quarter-point cut in the federal funds rate for the second consecutive meeting. However, this is not a certainty, as the Fed has cautioned that it may need to change course if inflation accelerates beyond its current high level. Low-interest rates can exacerbate inflation, complicating the Fed’s decision-making process.
The latest monthly inflation report was slightly better than economists had anticipated, raising hopes. However, if the US government’s shutdown persists, it could obscure the forecast for continued rate cuts.
Corporate Earnings and AI Investments
Apart from lower interest rates, another factor bolstering stock prices is the expectation that US companies will continue to deliver solid profit growth. Keurig Dr Pepper, for instance, climbed 7.6% on Monday after reporting quarterly profits that met analysts’ expectations. The company, known for Canada Dry and Green Mountain coffee, benefited from higher prices for K-Cup products, among other factors.
Some of Wall Street’s most influential companies are set to report their results this week, including Alphabet, Meta Platforms, and Microsoft on Wednesday, with Amazon and Apple following on Thursday. These companies will need to demonstrate significant growth and justify their substantial investments in artificial intelligence technology. Concerns are mounting that AI may be experiencing a bubble, reminiscent of the dot-com boom that burst in 2000. For example, Nvidia’s stock has surged by 42.6% this year, and Qualcomm soared 11.1% on Monday after unveiling AI products for data centers.
Mergers, Acquisitions, and Global Market Impact
Meanwhile, announcements of mergers and acquisitions also influenced stock movements on Monday. Cadence Bank rose 4.4% after Huntington Bancshares announced its intention to acquire the bank, which has locations across Texas and the South, for $US7.4 billion ($11.3 billion) in stock. Huntington’s shares fell by 2.7% in response.
Avidity Biosciences saw a remarkable 42.4% leap after Novartis agreed to purchase the San Diego-based biopharmaceutical company for $US12 billion, following Avidity’s spin-off of its early-stage precision cardiology programs.
Overall, the S&P 500 rose by 83.47 points to 6,875.16. The Dow Jones Industrial Average added 337.47 points to 47,544.59, and the Nasdaq composite climbed 432.59 points to 23,637.46.
In stock markets abroad, indexes rose modestly in Europe following more significant gains in Asia. Stocks climbed 1.2% in Shanghai and 1% in Hong Kong. They rose even more in Tokyo, where the Nikkei 225 jumped 2.5%, and in Seoul, where South Korea’s Kospi rallied 2.6%.
The Nikkei 225 surpassed the 50,000 level for the first time, as opinion polls indicate strong public support for Japan’s newly installed Prime Minister Sanae Takaichi and her market-friendly policies. Takaichi’s advocacy for increased defense spending has boosted the stock prices of major defense contractors, such as Kawasaki Heavy Industries, which jumped 9% on Monday.
As the week progresses, all eyes will be on the US-China talks, the Federal Reserve’s interest rate decision, and corporate earnings reports to gauge the future trajectory of global markets.
