Ask Wall Street what's ahead for stocks to the end of 2024 after Friday's strong jobs report, and you mostly get a thumbs up.
But interest rate increases, especially for mortgage rates, may keep things in check.
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Stocks were higher, partly because Fed governor Adrianne Kugler said the central should continue to focus on beating down inflation. Still, she said the Fed needs to maintain a "balanced approach" that avoids slowing job and economic growth.
Still, the bull case for stocks seems a little squishy. There are headwinds facing markets that could make stocks range-bound through the end of the year, Brian Weinstein, head of global markets at Morgan Stanley.
These include:
Jobs data paints a bullish picture
The jobs report was undeniably bullish. This is not only because it suggested that payroll employment jumped by 254,000 and unemployment fell slightly to 4.1% but also because the Bureau of Labor Statistics revised estimates for job growth in August and July up by 72,000, more than expected.
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Stocks surged on Friday on the report. But the S&P 500 and other major indexes fell back on Monday because of worries that the jobs report suggested the Federal Reserve's decision to cut its key interest rate by a half-percentage point was too big.
On Tuesday, traders seemed more bullish on stocks, with the Standard & Poor's 500 Index up nearly 1% and the Nasdaq Composite up 1.45%. The Dow Jones Industrial Average added 0.3%.
The S&P 500 and Nasdaq were higher because of gains in technology stocks. The S&P 500 Technology Sector was up about 2%, led by strong gains in Palantir Technologies ( PLTR ) , up 6.6%; Palo Alto Networks ( PANW ) , up 5.1%, and Nvidia ( NVDA ) , up 4.1%.
The Technology Select Sector ETF ( XLK ) added 1.9%. It's up 15.2% since an Aug. 5 bottom of $197.90.
Nvidia fuels bulls' excitement
Nvidia is up more than 29% since Sept. 6, in part in reaction to CEO Jensen Huang's comment that demand for its new Blackwell graphics processing unit is "insane."
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The product is designed to address the computing and bandwidth needs of current and future artificial intelligence workloads.
Microsoft ( MSFT ) was up 1.3% to $414.71, despite a downgrade to "perform" from outperform" from brokerage Oppenheimer.
The firm believes consensus estimates for revenue and earnings per share are too high. The issue: losses from Microsoft's involvement in OpenAI, which could be in the $2 billion-to-$3 billion range in fiscal 2025, which began on July 1.
Was the Fed's rate cut too much too soon?
There was a counter view: that the Fed's rate decision—which trimmed the federal funds rate from 5.25%-to-5.5% to 4.75%-to-5%—was too big and could prove to be inflationary.
That worry has pushed interest rates higher. The 10-year Treasury yield rose to 4.02% on Tuesday from 3.62% on September 16, two days before the Fed's decision.
More Wall Street Analysts:
The rate on a 30-year mortgage was quoted Tuesday at 6.62% at Mortgage News Daily, up from 6.11% on Sept. 11. The boost would push the monthly principal-and-interest portion of monthly payment from $1,516 to $1,599, a 5.5% increase.
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