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Market Snapshot: U.S. stocks end slightly lower following best month for S&P 500, Dow since November 2020

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U.S. stocks struggled for direction and were unable to shake off earlier losses on Monday after the biggest monthly gain for the S&P 500 and Dow industrials since November 2020 left investors to debate whether equities have bottomed or are experiencing a bear-market bounce from June’s lows.

What’s happening

The Dow Jones Industrial Average
DJIA,
-0.31%

fell 85 points, or 0.3%, to 32,761.

The S&P 500
SPX,
-0.45%

was down 21 points, or 0.5%, at 4,110 after flipping between small gains and losses.

The Nasdaq Composite
COMP,
-0.29%

slipped 52 points, or 0.4%, to 12,339.

Stocks had ended sharply higher on Friday, leaving the Dow up 6.7% for the month, while the S&P 500 saw a 9.1% July jump, the biggest monthly gains for both since November 2020. The Nasdaq surged 12.3% for its best monthly performance since April 2020 and its strongest July on record, according to Dow Jones Market Data.

What’s driving the market

Stocks flipped between losses and gains on Monday after the Institute for Supply Management reported that its closely followed manufacturing gauge dipped to 52.8% in July from a reading of 53% a month earlier.

Economists polled by The Wall Street Journal had expected the index to come in at 52.1%. While any number above 50% signifies growth, the latest reading was the weakest since June 2020.

“Although the activity outlook remains challenging, we believe that the risk-reward for equities is looking more attractive as we move through 2H,” said JPMorgan Chase & Co.’s Marko Kolanovic, Nikolaos Panigirtzoglou and others in a note. They cited the S&P 500’s “second sharpest P/E (price-to-earnings ratio) de-rating of the past 30 [years], exceeding the typical compression seen during prior recessions,” and said that “while the current equity multiple is in-line with the historical median, we believe it is better than fairly valued given the shift in industry mix to higher quality companies.”

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On Friday, data showed that higher gasoline prices led the personal-consumption-expenditures price index up 1% in June, exceeding forecasts of a 0.9% advance. June inflation measured by the PCE index showed the cost of living over the past year climbed 6.8%, the highest rate since January 1982.

Last Wednesday, the Fed ended its two-day policy meeting with another 75-basis-point rate hike in an effort to curb soaring inflation. Fed Chair Jerome Powell said another 75 basis-point move could be appropriate in September, but the Fed would take a data-dependent, meeting-by-meeting approach to decisions.

Powell also warned that the economy would need to see a period of below-trend growth to rein in red-hot inflation and that the path to a so-called soft landing for the economy continued to narrow.

Skeptics contend bulls, in looking for a so-called pivot from the Fed, were misreading the message from central bankers.

Federal Reserve Bank of Minneapolis President Neel Kashkari said on Sunday that the central bank is still committed to its goal of 2% inflation. However, “we are a long way away” from that goal, he said in an interview on CBS News’ “Face the Nation.”

“Investors run the risk of reading too much into Powell’s somewhat toned down hawkish rhetoric last week and have brushed off hawkish remarks by the Fed’s most dovish policy maker, Neel Kashkari, on Sunday, likely because he is not a voting FOMC member this year,” Raffi Boyadjian, lead investment analyst at XM, wrote in a note.

More than 170 S&P 500 companies reported results last week, while more than 150 are slated to report this week. Just two components of the Dow were slated to report, with Caterpillar Inc.
CAT,
-1.70%

due on Tuesday and Amgen Inc.
AMGN,
-0.88%

set for Thursday.

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Shares of Boeing Co. BA rose 6% to lead Dow gainers after the aerospace and defense giant reportedly cleared a hurdle with the Federal Aviation Administration that could allow it to resume deliveries of its 787 airliner. The FAA said it would approve Boeing’s process for validating fixes to each 787 plane before they are delivered to customers, according to an Associated Press report.

Separately, The Wall Street Journal reported that Boeing’s defense manufacturing plants will vote on Wednesday on a labor contract proposal, which temporarily delays a strike that was scheduled to begin as soon as Monday.

See: FAA Boeing 787 approval could spell good news for these related stocks

“After a very robust July, we’re kicking off a new month with trading sentiment that’s cautiously optimistic,” Art Hogan, chief market strategist for B. Riley Wealth, said via phone. “We’re entering a new week in which we’re going to see a parade of Fed speakers and investors will likely overinterpret the messages that we’re getting from them.”

In other data, spending on construction projects fell 1.1% in June, the Commerce Department reported Monday. Economists polled by The Wall Street Journal had expected a 0.4% increase.

Overseas, Chinese manufacturing activity unexpectedly contracted in July, as Beijing’s COVID-19 restrictions and weak demand undercut hopes for a more robust economic revival. The official manufacturing purchasing managers index pulled back to 49.0 in July from 50.2 in June, China’s National Bureau of Statistics said Sunday. The result left the index below the 50 level that separates expansion from contraction and short of the median forecast of 50.3 among economists polled by The Wall Street Journal.

Companies in focus

U.S.-listed shares of Nio Inc.
NIO,
+2.41%

were up 2.3% after the China-based electric vehicle maker reported deliveries rose in July from a year ago to mark a third-straight monthly increase.

Alibaba Group Holding Ltd.
BABA,
-0.68%

acknowledged in a Monday filing that it has been identified by the Securities and Exchange Commission as a foreign company whose auditing paperwork couldn’t be fully inspected by the Public Company Accounting Oversight Board, though the company said it would work to stay listed on the New York Stock Exchange. Shares of Alibaba’s American depositary receipts were down 0.5% after a drop of around 11% on Friday.

Shares of Perkin Elmer Inc.
PKI,
+5.84%

jumped 5.9% after the disease diagnosis company announced an agreement to sell its Applied, Food and Enterprise Services businesses for $2.45 billion in cash to private-equity firm New Mountain Capital.

Automotive oil, additives and lubricant maker Valvoline Inc.
VVV,
-2.13%

said Monday it has reached an agreement with Aramco
2222,
-0.13%

to sell its global products business for $2.65 billion in cash. Valvoline shares slipped 0.8%.

Other assets

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.619%

fell 4 basis points to 2.606%. Yields and debt prices move opposite each other.

The ICE U.S. Dollar Index
DXY,
-0.42%
,
a measure of the currency against a basket of six major rivals, fell 0.4%.

The U.S. oil benchmark
CL.1,
-5.01%

dropped 5% to $93.70 a barrel, while gold for August delivery gained $6.10, or almost 0.4%, to settle at $1769 an ounce.

Bitcoin
BTCUSD,
-3.65%

was down 3.3% near $23,024.

The Stoxx Europe 600
SXXP,
-0.19%

finished down by 0.2%, while London’s FTSE 100
UKX,
-0.13%

closed lower by 0.1%.

The Shanghai Composite
SHCOMP,
+0.21%

ended 0.2% higher, while the Hang Seng Index
HSI,
+0.05%

eked out a fractional gain and Japan’s Nikkei 225
NIK,
+0.69%

advanced 0.7%.

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