Here are the main things investors should know for their trading day:
1. Cool Inflation, Hot Market
Softer-than-expected inflation numbers made the stock markets go up on Tuesday. The S&P 500 had its best day since April. The Nasdaq went up more than 2%, and the Dow increased nearly 500 points.
This is partly because Home Depot did well after reporting earnings. The markets are doing great this month because the economy seems to be slowing down a bit, which is calming down Treasury yields.
People are hopeful that the Federal Reserve won’t increase interest rates anymore. We’ll get more information on inflation from the producer price index on Wednesday. Also, it looks like there might not be a government shutdown this week because the House passed a funding bill with support from both Democrats and Republicans, and it’s now going to the Senate.
2. Mortgage Pulse
Last week, lower interest rates increased the demand for mortgages, reaching the highest point in five weeks, as reported by the Mortgage Bankers Association. This week, mortgage rates continued to drop due to a decrease in Treasury yields caused by the lower inflation numbers.
However, the rate for the popular 30-year fixed-rate mortgage is still relatively high, above 7%, compared to the lower rates around 3% we saw at the beginning of the Covid pandemic. Lawrence Yun, the chief economist of the National Association of Realtors, predicts that this rate could go back down to the 6% range by spring.
3. Meeting in San Francisco
On Wednesday, President Joe Biden and Chinese leader Xi Jinping are scheduled to meet in San Francisco as the U.S. and China work to ease increasing trade and military tensions. The Biden administration has been careful not to raise hopes too high for a major breakthrough.
Despite this, there is cautious optimism on Wall Street regarding the summit. Pia Singh, suggests that investors would probably be satisfied even with an agreement for more regular discussions between the two countries.
4. Target Profit Beat Expectations
This morning, Target announced a profit that surpassed what Wall Street was expecting. The retailer has been facing challenges lately due to lower sales, as it worked on adjusting its inventory to address an excess of unwanted products that was affecting profits.
While progress has been made in managing the inventory, which was a significant issue a year ago, sales remain a bit challenging. Shoppers are mainly focusing on buying essential items rather than spending much on the discretionary items that Target is known for.
Despite this, investors were pleased with the earnings report, causing Target shares to rise by double digits in premarket trading.
5. Key Aspect of Apple’s Business
On Tuesday, Alphabet CEO Sundar Pichai confirmed that Apple receives a significant 36% of its Safari search revenue from Google. This partnership, where Google is set as the default search engine on Apple’s devices, is a central focus of the Justice Department’s antitrust case.
Interestingly, this information came up during legal proceedings for a separate case: the lawsuit by Epic Games, the maker of Fortnite, against Google. An expert witness speaking on behalf of Google revealed the percentage of payment Apple receives for search unexpectedly on Monday.
Summary
Investors are navigating a changing market with positive economic signals despite softer inflation. Mortgage demand is up due to lower rates, but the popular 30-year fixed-rate remains relatively high. Diplomatic tensions between the U.S. and China are impacting investor confidence. Target is exceeding profit expectations, addressing sales challenges. Apple’s revenue partnership with Google is under antitrust scrutiny.
