U.S. stock futures edge lower after best month for S&P 500, Dow since November 2020

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U.S. stock futures drifted lower early Monday to kick off August after the Dow Jones Industrial Average and S&P 500 logged their biggest monthly gains since November 2020.

What’s happening
  • Futures on the Dow Jones Industrial Average YM00, +0.03% were down 22 points, or 0.1%, at 32,803.
  • S&P 500 futures ES00, -0.05% fell 8.50 points, or 0.2%, to 4,125.
  • Nasdaq-100 futures NQ00, +0.03% were off 33 points, or 0.3%, at 12,938.25.

Stocks ended sharply higher on Friday, leaving the Dow DJIA, +0.97% up 6.7% for the month, while the S&P 500 SPX, +1.42% 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

Big gains for stock indexes last week capped a strong July bounce fueled by earnings that have so far been better than feared. Investors also cheered what they saw as signals the Federal Reserve might not have to raise rates as aggressively as previously expected as the economy slows.

“In equity markets, there were few signs of caution about how Fed speakers and the upcoming data might affect the narrative as generally impressive earnings results in both America and Europe gave the bulls the upper hand, while the retreat in yields provided additional support,” said Raffi Boyadjian, lead investment analyst at XM, in a note.

On Friday, data showed that higher gasoline prices led the personal-consumption-expenditures price index up 1% in June, exceeding forecasts of 0.9%. 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 last week that another 75 basis-point move could be considered in September but that 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 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,” Boyadjian said.

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.