Stocks Rally As China Reopening Boosts Markets, But Investor Sentiment Remains ‘Precarious’
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Topline
Markets moved slightly higher on Monday as stocks tried to rebound from a losing week; investor sentiment rose thanks to positive news out of China, which looks to be easing coronavirus lockdown restrictions and regulatory crackdowns on its tech sector.
Investors are hoping for a more positive week as China reduces lockdown restrictions.
Key Facts
Stocks attempted to rebound from last week’s losses: The Dow Jones Industrial Average rose 0.1%, less than 100 points, while the S&P 500 gained 0.3% and the tech-heavy Nasdaq Composite 0.4%.
Investor sentiment was up early on Monday after news that China would be rolling back more of its Covid-19 restrictions, with the reopening news providing a boost to global markets.
What’s more, the Wall Street Journal reported that Chinese regulators will conclude a years-long probe into ride-sharing giant Didi and lift a ban on new users, pushing stocks higher on hopes that China’s regulatory crackdown on its tech sector could be nearing its end stages.
U.S. tech stocks largely moved higher and led the market gains on Monday: Shares of Apple rose nearly 1% and Google parent Alphabet 2%, while e-commerce giant Amazon saw its stock jump more than 2% on the first day of trading after a 20:1 stock split took effect.
Shares of electric vehicle maker Tesla, meanwhile, rose 1.6% and rebounded slightly from steep losses last Friday when shares fell 9% after CEO Elon Musk warned of layoffs and said that he had a “super bad feeling” about the economy.
Despite markets kicking off the week on a positive note, all of the major averages are still trading below their 50- and 200-day moving averages and “remain mired in pretty well-defined downtrends with a series of lower highs and lows,” notes Bespoke Investment Group.
Crucial Quote
There is a “positive feedback loop forming amid growing evidence of disinflation, a peak in the hawkishness of Fed tightening expectations and China reopening,” says Vital Knowledge founder Adam Crisafulli. Despite the recent rise in market sentiment, risks remain elevated: The disinflation pattern remains “very modest,” China isn’t fully abandoning its ‘zero tolerance’ Covid policy and investor psychology is still “quite precarious,” he adds.
Key Background
Stocks finished slightly lower last week and continue to struggle for direction. The Dow fell nearly 1%—its ninth down week out of the last ten, while the S&P 500 and Nasdaq both lost over 1% last week for their eighth negative week out of nine. Volatility remains elevated, with investors fearful that rising rates and surging inflation could lead to a slowdown in economic growth and possible recession. Amid growing urgency to fight inflation, the Federal Reserve is currently on track to raise interest rates by 0.50% at each of its upcoming policy meetings in June and July.
What To Watch For
Markets will be watching closely for the upcoming consumer price index reading for May, which will be released on Friday. Inflation is expected to fall slightly from April, with some strategists hoping for further evidence that surging prices may have peaked.
Further Reading
Dow Falls 300 Points Despite Strong Jobs Report As Rates Surge On Recession Fears (Forbes)
How Does The Market Perform During An Economic Recession? You May Be Surprised (Forbes)
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