U.S. stocks resumed a rally as investors weighed bets the Federal Reserve is approaching the end of its interest-rate hikes against evidence pointing to a slowdown in China’s economy.

The S&P 500 gained 0.4 per cent and the tech-heavy Nasdaq 100 rose 0.8 per cent, adding to last week’s historic gains amid optimism the Fed may soon be able to claim victory over inflation. 

Activision Blizzard Inc. rose after Microsoft Corp. and British regulators held “productive” talks needed to clear the companies’ US$69 billion tieup. Ford Motor Co. fell after cutting the price on the electric version of its F-150 truck. The dollar fluctuated, and equities in Europe and mainland China declined after gross domestic product in China grew at a slower-than-expected pace in the second quarter, increasing risks likely to hit the global economy.

“Many countries do depend on strong Chinese growth to promote growth in their own economies, particularly countries in Asia, and slow growth in China can have some negative spillovers for the United States,” Treasury Secretary Janet Yellen said in a Bloomberg TV interview on Monday. “Growth has slowed, but our labor market continues to be quite strong. I don’t expect a recession.”

For a time, analysts believed Chinese shoppers coming out of Covid lockdowns would be able to carry the global economy — despite rising U.S. and European interest rates. However, that narrative is looking increasingly shaky. 

Yellen said she sees the U.S. on a “good path” to bringing down inflation without a major weakening in the labor market. 

Last week stocks and bonds rallied after data showed a slowdown in the rate of inflation.

“We’re in a place where inflation is becoming problem number two and problem number one is growth and people are starting to get comfortable that growth is going to be okay,” said Scott Ladner, chief investment officer at Horizon Investments LLC. “Anytime you see small-caps outperforming large-caps and the Nasdaq, that’s people starting to get on board with the ‘growth in the U.S. is going to be just fine’ standpoint.”

The next pressure point for markets will be earnings, with hundreds of companies reporting over the next few weeks. S&P 500 firms are expected to post a 9 per cent drop in profits in the second quarter, making it the worst season since 2020, according to data compiled by Bloomberg Intelligence. In Europe, it may be even worse, with a projected 12 per cent slump. 

“Running bulls could be tripped up by cracks in the economy and corporate earnings,” Saira Malik, chief investment office of Nuveen, said. “Looking at S&P 500 corporate earnings as a gauge, analyst estimates continue to be revised lower for both the second quarter of 2023 and the full year.”

In commodities, crude futures dropped as traders weighed disappointing Chinese data and restarting Libyan supplies against signs of a tightening market. Wheat futures jumped after Russia terminated a grain-export deal, jeopardizing a key trade route from Ukraine. And gold was little changed. 

Key events this week:

• U.S. retail sales, industrial production, business inventories, cross-border investment, Tuesday
• Eurozone, UK CPI, Wednesday
• U.S. housing starts, Wednesday
• China loan prime rates, Thursday
• U.S. initial jobless claims, existing home sales, Conf. Board leading index, Thursday
• Japan CPI, Friday

Stocks

• The S&P 500 rose 0.4 per cent as of 4:01 p.m. New York time
• The Nasdaq 100 rose 0.9 per cent
• The Dow Jones Industrial Average rose 0.2 per cent
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.1 per cent to US$1.1241
• The British pound fell 0.1 per cent to US$1.3076
• The Japanese yen was little changed at 138.67 per dollar

Cryptocurrencies

• Bitcoin fell 1.2 per cent to US$29,914.27
• Ether fell 2.2 per cent to US$1,887.57

Bonds

• The yield on 10-year Treasuries declined three basis points to 3.80 per cent
• Germany’s 10-year yield declined three basis points to 2.48 per cent
• Britain’s 10-year yield declined one basis point to 4.43 per cent

Commodities

• West Texas Intermediate crude fell 1.7 per cent to US$74.11 a barrel
• Gold futures fell 0.3 per cent to US$1,958.90 an ounce