The stock market is higher Monday, but the major averages are paring gains as semiconductor stocks weaken.
Ten of 11 S&P sectors are higher, with Consumer Discretionary now at the top. Info Tech in the red after Nvidia preannounced weak Q2 sales. Other chip and chip-equipment stocks are struggling.
Since “peaking in June, long-dated Treasuries have had one of their strongest two-month rallies on record,” Morgan Stanley Strategist Mike Wilson wrote. “Meanwhile, the yield curve has inverted by as much as 44bp.”
“Perhaps most importantly, market-based inflation expectations have fallen sharply and now sit much closer to the Fed’s long-term target of 2%,” he said. “Right or wrong, it appears that the bond market has quickly turned from a vigilante to a believer that the Fed will get inflation under control.”
“Meanwhile, US stocks have rallied too, and are also up significantly from the June lows. In short, the equity market appears to agree with the bond market’s view that the Fed will tame inflation and can soon pause its rate hikes, which is good for stock valuations.”