U.S. stocks are beginning to regain momentum, marking a recovery from last week’s losses. The S&P 500, Dow Jones Industrial Average, and the Nasdaq composite all showed an uptick in early trading, with major tech stocks such as Tesla and Meta Platforms leading the charge. Last week’s downturn was largely due to a rise in bond market yields, which tend to impact growth stocks the hardest. This surge in yields followed reports indicating the U.S. economy’s resilience, a factor that could potentially contribute to the ongoing inflationary pressures.

This week, all eyes are on the Federal Reserve as it deliberates on whether to continue hiking interest rates to curb inflation. A crucial data point will be revealed on Wednesday with the U.S. government’s monthly update on consumer prices, which are projected to be 3.6% higher than a year ago. The Fed has already increased its main interest rate to a two-decade high and plans future adjustments based on the performance of inflation and other economic indicators. Despite inflation decreasing from last year’s peak, economists warn that the final push to reach the Fed’s target might be the most challenging.

U.S. Stocks Show Signs of Recovery as Tech Stocks Rally

U.S. stocks are ticking higher in Wall Street’s attempt to recover from last week’s losses. The S&P 500 was up 0.4% in early trading, following its first losing week in the last three. The Dow Jones Industrial Average also saw a rise of 151 points, or 0.4%, standing at 34,728 as of 9:45 a.m. Eastern time. Additionally, the Nasdaq composite rose by 0.5%.

Tech Stocks Lead the Way

As was the case last week, large tech-oriented stocks were at the forefront of the rise. Tesla saw a surge of 6.2%, while Meta Platforms experienced a 2% increase. However, last week these same tech stocks led the market into a downward spiral as bond market yields climbed. High-yield stocks, especially those in high-growth sectors, are typically the most affected by such increases. The rise in yields was spurred by reports showing the U.S. economy’s resilience, which could potentially be adding to the inflationary pressures.

The Federal Reserve’s Role

The Federal Reserve’s stance on raising rates to rein in inflation, currently above its 2% target, will be further clarified with the upcoming data release on consumer prices. The current forecast suggests that prices were 3.6% higher in August than they were a year ago. The Fed has already raised its main interest rate to a two-decade high and plans further moves based on the performance of inflation and other economic indicators. However, economists warn that the final push to achieve the Fed’s target could be the most challenging.

The Importance of Upcoming Data

With no speeches from Fed officials leading up to next week’s interest rate meeting, "the data will do all of the talking this week," say economists at Deutsche Bank. They highlight the importance of Thursday’s report on wholesale inflation, which they say could be nearly as significant as consumer-level data. They point out that high wage growth in the healthcare industry could be pushing up inflation.

Other Market Movements

In other market movements, Apple’s stock swung from an early gain of over 1% to a loss of 0.3% ahead of Tuesday’s anticipated iPhone launch. Qualcomm rose 3.8% after announcing a deal to supply 5G equipment for Apple’s 2024-2026 phone launches. On the downside, aerospace company RTX saw a 6.5% slump after announcing a potential $3-3.5 billion hit to its pre-tax operating profit due to issues with its Pratt & Whitney engines.

Mergers and Acquisitions

In M&A news, Hostess Brands jumped 18.9% after J.M. Smucker announced its plans to acquire the Twinkies and HoHos maker for $5.6 billion, including $900 million of net debt. However, J.M. Smucker’s stocks slumped by 7.4%.

Global Market Trends

Meanwhile, in overseas markets, Japan’s Nikkei 225 fell by 0.4% following hints from Bank of Japan Gov. Kazuo Ueda about possible interest rate hikes. European stock markets saw modest increases, while Asian markets were mixed.

Takeaways

The U.S. stock market is showing signs of recovery from last week’s losses, led by the technology sector. However, the future direction of the market will depend heavily on upcoming inflation data and the Federal Reserve’s response. The performance of individual stocks remains subject to company-specific news and global market trends.