Global stocks edged higher on Monday while the dollar fell to its lowest level since June as a run of weaker-than-expected U.S. economic data reduced expectations that the Federal Reserve will raise interest rates at its next meeting.
The shift in rate expectations provided fresh support for technology shares, with Nasdaq futures outperforming broader U.S. equity futures. Investors were also digesting the latest corporate earnings and assessing whether resilient profits can sustain the stock market’s rally even as economic momentum shows signs of cooling.
S&P 500 futures were up about 0.1%, while Nasdaq 100 futures gained 0.5%. Dow Jones Industrial Average futures fell 88 points, or 0.2%.
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The moves followed a third consecutive weekly advance for the S&P 500, which reached a record closing high last week after a strong earnings season improved investor sentiment.
European equities were also slightly higher. The STOXX 600 gained 0.04%, led by resource stocks as gold prices advanced.
The latest economic data have shifted the focus back toward monetary policy. U.S. retail sales unexpectedly declined in July, marking their first monthly drop in nine months, while a relatively mild inflation reading and weaker consumer sentiment added to evidence that economic activity may be losing some momentum.
Markets now see only about a 30% probability of a Federal Reserve rate hike next month, according to CME Group’s FedWatch tool, down from roughly 50% a week earlier.
That repricing has been particularly supportive for technology stocks, whose valuations are sensitive to interest-rate expectations because lower yields reduce the discount applied to future earnings.
“You’ve had the shift in interest rate expectations which feeds into some of those tech names,” Rory McPherson, chief market strategist at Wren Sterling, told CNBC’s “Squawk Box Europe.”
“I think that helps explain some of that big rally we’ve had recently in tech after quite a quiet July where we had all those strong earnings but really tech didn’t do very much,” he said.
Chip stocks received an additional boost after Bloomberg reported that Anthropic’s second-quarter revenue exceeded $11.5 billion, highlighting the rapid expansion of spending on artificial intelligence infrastructure.
Micron Technology rose more than 3% in premarket trading, while Intel and Broadcom each gained about 1%.
The AI trade has been a major driver of equity markets this year, although investors have been questioning whether the pace of spending and valuations surrounding the sector can be sustained. Strong revenue growth at AI companies is providing fresh evidence of demand for the computing infrastructure needed to train and operate sophisticated models.
Fed Minutes in Focus
Investors are now turning their attention to Wednesday’s release of the minutes from the Federal Reserve’s July meeting for clues about the debate over the direction of interest rates.
The Fed voted 9-3 on July 29 to leave its benchmark rate unchanged at 3.50% to 3.75% for a fifth consecutive meeting.
The three dissenters, Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan, favored a 25-basis-point rate increase.
That split means the July minutes could provide important insight into how policymakers assess the balance between inflation risks and signs of weakening economic activity.
The market’s latest shift toward lower rate expectations has already pushed Treasury yields lower at the short end of the curve.
The two-year Treasury yield fell about 2 basis points to 4.154% on Monday after declining 3 basis points last week and touching a seven-week low of 4.0977%.
The 10-year yield slipped to 4.688% after rising 4 basis points last week.
The combination of lower short-term yields and reduced expectations for a Fed hike has weighed on the dollar.
The euro climbed to a two-month high of $1.1595, while the Australian and New Zealand dollars reached 10-week highs of $0.7105 and $0.5910, respectively.
Oil Remains Elevated As Middle East Risks Persist
Oil prices remained volatile as investors continued to assess the impact of the conflict involving Iran and the disruption to energy flows through the Middle East.
Brent crude rose about 1% to $89.42 a barrel after gaining 6% last week. U.S. crude was up 0.55%, having climbed 5.4% during the previous week.
Iran on Saturday called on the United States to accept defeat, while President Donald Trump urged Americans to accept higher gasoline prices while the conflict continues.
The wider regional risks were also evident in southern Lebanon, where at least 11 people were killed in Israeli strikes on Saturday, according to Lebanon’s health ministry. The strikes came weeks after Lebanon agreed to a U.S.-mediated peace framework with Israel.
Shane Oliver, chief economist at AMP, said the lack of a resolution to the Iran-Hormuz standoff leaves oil markets vulnerable to further disruption.
“While there is still no resolution to the Iran/Hormuz impasse, our base case remains that oil prices will stay in a $70-$100 range with Iran preventing it going lower and the U.S. moving to try and calm things down whenever it gets above $100,” Oliver said in a note.
He warned that the risk remains that there will be no sustainable peace deal and that oil flows from the Middle East could remain 10% to 15% below normal levels. That creates a potential complication for central banks. Higher energy prices can feed into inflation even as weaker consumer demand puts downward pressure on broader price growth.
Markets Await Evidence on U.S. Consumers
The economic calendar is relatively light this week, but investors will receive several indicators that could help determine whether the recent slowdown is temporary or becoming more entrenched.
The August Empire State manufacturing index and NAHB Housing Market Index are due, while the August purchasing managers’ indexes will offer a broader view of business activity.
Corporate earnings will also provide an important test of consumer resilience. Home Depot and Lowe’s report during the week, followed by Walmart on Thursday, with investors looking for signs that households are becoming more cautious as borrowing costs and living expenses remain elevated.
Against that backdrop, the central question for markets is becoming clearer: Can the U.S. economy slow enough to give the Fed room to ease policy without weakening corporate earnings and economic growth enough to undermine the stock-market rally?
So far, investors appear to be betting that the answer is yes.
The S&P 500’s record high, falling Treasury yields and weaker dollar indicate that markets are treating the latest soft economic data primarily as a reason for less restrictive monetary policy rather than as a warning of an imminent recession.
That balance remains fragile. Some analysts believe that a further deterioration in consumer spending could eventually weigh on corporate earnings, while a renewed rise in oil prices could complicate the Fed’s inflation outlook.