Global equity markets are hovering near record highs as traders await the next major U.S. economic release. Diminishing expectations for Federal Reserve rate hikes continue to support risk assets, while oil prices climb toward $84 per barrel due to a stalled agreement on the Strait of Hormuz reopening. As of writing, Dow futures are down 0.08%, S&P 500 futures are down 0.01%, and Nasdaq futures are up 0.02%.
The MSCI All-Country World Index rose 0.1% on Monday. European technology stocks led gains, with the regional benchmark index holding near the record high set last week. Germany's DAX index extended its Friday record, while France's CAC 40 and the UK's FTSE 100 declined. The MSCI Asia Index climbed 0.6%, with Japan's Nikkei 225 rising 2.1% and South Korea's KOSPI gaining 0.7%.
Weak U.S. employment data propelled the S&P 500 to a record closing high on Friday. JPMorgan strategists have raised their year-end target for the S&P 500 from 7,800 to 8,000 points, citing a strong earnings season and faster-than-expected commercialization of AI by Big Tech that is driving up corporate earnings forecasts.
Recent global equity record highs have been fueled by robust corporate earnings. Bank of America analysts note that nearly 90% of S&P 500 companies have reported results. Excluding investment gains from Alphabet and Amazon, corporate earnings per share (EPS) grew 30% year-over-year. Additionally, the proportion of S&P 500 companies beating earnings estimates reached 76%, one of the highest levels since 2021.
This week's earnings calendar is lighter but still includes semiconductor company Applied Materials, network equipment maker Cisco, and cloud infrastructure firm CoreWeave.
Market Attention Turns to U.S. CPI
Current market focus is on this week's U.S. consumer price data for clues about the Fed's next policy move, alongside monitoring progress toward a long-term stability deal for the Strait of Hormuz. Jefferies senior European economist Mohit Kumar stated, "We maintain our view that the Fed will not raise rates this year. The key will depend on this week's inflation report."
Economists polled by Reuters expect U.S. July Consumer Price Index (CPI) data, due Wednesday, to show a year-over-year increase of 3.4%, down from 3.5% in June. Core CPI, which excludes volatile food and energy prices, is forecast to rise 2.5% year-over-year, compared to 2.6% in June.
Kumar added, "If oil prices remain under control and decline further from current levels, it will prevent the Fed from needing to raise rates." Tickmill Group analyst Patrick Munnelly commented, "Following the softening of June inflation data, the market needs further confirmation that the disinflation process is ongoing."
AcomeA Sgr portfolio manager Fabio Caldato remarked, "With the earnings season largely concluded, geopolitical factors 鈥?especially the Iran situation's impact on oil prices and inflation expectations 鈥?will regain market focus. We are watching Wednesday's U.S. CPI data as a significant test for the continued slowdown of inflation."
Stalled Strait of Hormuz Agreement
Oil prices continue to rise due to the lack of a deal on the Strait of Hormuz. Prices surged up to 1.7% as Iran and Oman failed to reach an agreement. Concurrently, Yemen's Houthi group claimed an attack on a Saudi oil facility near the Red Sea. Subsequently, Brent crude pared gains, currently trading around $84.15 per barrel.
Oil prices remain significantly below the highs exceeding $126 per barrel seen in late April. Iran stated on Sunday that an agreement with Oman on transit arrangements through the Strait of Hormuz is in its final stages but reiterated that the waterway would only reopen after the US meets other conditions.
Iranian Foreign Minister Abbas Araghchi indicated over the weekend that a deal with Oman to establish a shipping route through the Strait of Hormuz is "very close." However, he stated Iran currently rules out direct talks with the US due to Washington's violation of a temporary peace agreement reached in June.
Iran introduced new negotiating conditions over the weekend, including demands for US compensation for war damages, adding complexity to the talks and potentially delaying the end of the conflict. Bloomberg MLIV strategist Mark Cranfield noted, "Oil prices are higher on Monday as the Strait of Hormuz reopening issue has seen no progress for several consecutive weekends. However, traders do not see a sustained long-term price rally. Net long crude oil positions saw only a modest rebound in July and have been reduced across various crude contracts."
Diminished Fed Rate Hike Expectations
U.S. Treasury yields stabilized after significant volatility following Friday's employment data, with the 10-year yield holding around 4.65%. Commerzbank analyst Hauke Siemssen commented, "The surprisingly weak non-farm payroll data from Friday continues to influence the market," adding that the bond market "remains in a state of tension."
UK gilt yields rose due to elevated oil prices and the ongoing US-Iran conflict. The 10-year UK gilt yield increased 0.4 basis points to 4.924%. Investors await this week's US inflation data and the UK's preliminary Q2 GDP figures to assess the economic conditions in both countries.
U.S. Dollar Weakens
In currency markets, the US dollar strengthened slightly against most G10 currencies. According to swaps market data, traders have reduced the probability of a Fed rate hike in September to about 45%, down from 64% a week ago.
Market attention is on the Japanese yen, which weakened against the dollar to around 158.30. The yen is the worst-performing G10 currency this month as the boost from previous Japanese government intervention fades, with traders wary of potential further official action.
Bank of Japan policymakers have warned that inflation risks are increasing, potentially necessitating faster rate hikes than previously anticipated. The summary of opinions from the BOJ's July meeting indicated some members believe rising inflationary pressures could drive a faster pace of rate hikes, reinforcing expectations for a September rate increase.
Gold Steadies Above $4,350
In other markets, gold prices were largely steady at around $4,355, following their best weekly performance since January. Westpac International Economist Illiana Jain noted that recent US employment reports suggest the Fed is unlikely to raise rates quickly. Saxo Bank analysts commented, "Gold's rise is driven by multiple factors, including weak US economic data reducing near-term rate hike risks, increased US fiscal debt concerns, a weaker dollar, and continued buying by global central banks and Asian investors."
U.S. Senator Issues Ultimatum to AI Leaders: Halt Development or Face Congressional Action
Reports indicate that U.S. Senator Bernie Sanders has urged leading AI company CEOs to pause AI development, warning that lawmakers will intervene if they fail to act. Letters were sent to OpenAI founder Sam Altman, Anthropic's Dario Amodei, and Mark Zuckerberg. Sanders stated, "At a time when we have seen humanity lose control and create potentially dangerous viruses, your companies are racing ahead 鈥?investing tens of billions of dollars in a technology no one fully understands, predicts, or controls."
Currently, AI legislation, particularly efforts led by progressives like Sanders, is unlikely to gain sufficient support in the current Congress to become law. Symbolic bills and public pressure campaigns are anticipated, but if Democrats regain control of either chamber, there could be congressional investigations and subpoenas to hold tech CEOs accountable.
Goldman Sachs: U.S. Equity Issuance Set for Record in 2026, but Buybacks Provide Strong Hedge
Driven by massive funding needs from AI spending, U.S. companies are issuing more shares to investors. According to Goldman Sachs data, U.S. companies raised $252 billion through IPOs, follow-on offerings, convertible securities, and SPACs in the second quarter, surpassing the $234 billion quarterly record set in Q1 2021. Follow-on offerings reached $70 billion in Q2, and cumulative follow-on issuance for the year through July hit $105 billion, the highest for that period since 2021.
However, Goldman Sachs strategist Ben Snider noted that the increase in equity supply is more a return to normal levels than a threatening issuance wave. Despite the large dollar amounts, Snider said current issuance is still below historical averages relative to the overall stock market's size. Furthermore, activity is highly concentrated, with the top three IPOs and follow-on offerings accounting for nearly half of the cumulative issuance through July.
Wall Street's '8,000 Point Club' Expands: JPMorgan Raises S&P 500 Target, AI Profit Realization Revives Bull Confidence
JPMorgan on Monday raised its year-end S&P 500 target from 7,800 to 8,000 points, citing robust corporate earnings prospects and growing confidence that AI investments by large hyperscale cloud providers will drive faster revenue growth. The new target implies a roughly 3.1% upside from the index's last closing level of 7,757.64 points, joining a growing bullish wave with at least seven brokerages now expecting the benchmark to reach 8,000 by the end of 2026.
JPMorgan analysts stated, "As high backlogs convert into recognized revenue, cloud growth should be well-supported, helping validate increasing AI capital expenditure, strengthening order coverage, and further alleviating concerns about return on invested capital (ROIC)." The firm also raised its 2026 S&P 500 earnings per share estimate from $350 to $365 and its 2027 estimate from $390 to $420.
Focus Stocks
Morgan Stanley upgraded Hewlett Packard Enterprise to Overweight from Neutral, sending shares up over 5%. The analyst cited an attractive risk-reward profile, believing the market underestimates the asymmetric investment opportunity between the company's profitability and valuation.
A Delaware judge ruled on Friday that Verisk Analytics must proceed with its $2.35 billion acquisition of AccuLynx, causing the data analytics company's shares to plummet over 6.5%. Verisk had terminated the deal in December because the Federal Trade Commission failed to complete its merger review before the deadline.
Jefferies downgraded Apple to Underperform from Hold, with shares falling 1%. Through supply chain checks, the analyst determined that Apple's unannounced all-glass iPhone project appears to have been canceled. Apple's attempt to introduce higher-priced products to offset rising memory chip costs will pressure the company.
Investors await Rocket Lab's second-quarter earnings report after the market close on Monday, with shares rising nearly 3%. The stock gained nearly 60% in Q2 but remains over 40% below its late May high.
Berkshire Hathaway reported a 16% year-over-year increase in second-quarter operating profit on Saturday, with shares up 0.5%. Profit surged in manufacturing, services, and retail segments, while energy business profits were also strong. The insurance segment weakened, and investment income fell 9%.
Intel announced plans to issue $15 billion in new common stock, sending shares down 3%. The company stated the proceeds will be used for general corporate purposes, including capital expenditures and working capital. Intel said the offering will help sustain business expansion while maintaining a healthy balance sheet.
GameStop is reportedly considering withdrawing its $56 billion acquisition offer for eBay, with shares jumping over 1.5%. eBay rejected the unsolicited bid in May, calling it "neither credible nor attractive."
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