Stock Update: Wall Street is drifting to start the week

NEW YORK –

Stocks floated on Monday in their first trade since a major rally for Wall Street reached its first roadblock in six weeks.

The S&P 500 was up 0.2% in early trading. It’s still close to the highest level in a year, reached a few weeks ago. The Dow Jones Industrial Average was up 68 points, or 0.2%, to 33,795, as of 9:45 a.m. Eastern time, while the Nasdaq composite was up 0.3%.

Electric vehicle maker Lucid Group rose 9.5% after announcing a deal that would see it supply the powertrain and battery systems to Aston Martin. Tesla’s stock, meanwhile, fell 0.8% as the torrid rally cooled a bit on concerns it was going overboard. It has already more than doubled this year so far.

Trading in financial markets around the world has been largely silent as the fundamental question remains the same and remains unanswered for investors: will the economy be able to avoid a painful recession after central banks around the world raised interest rates at a breakneck pace to control inflation? check?

Adding to the uncertainty was a short-lived armed uprising in Russia over the weekend. The war in Ukraine has already helped drive up inflation around the world, but investors mostly overlooked the brief mutiny by mercenaries.

Crude oil prices remained relatively stable, unlike in the early days of the war in Ukraine, when they immediately skyrocketed. A barrel of US crude rose 0.5% to $69.52. Brent crude, the international standard, added 0.3% to $74.25.

There aren’t many economic or earnings reports coming up this week that can help answer the most important investor question. A report on Friday will show how the Federal Reserve’s favorite inflation measure behaved in May, but data on consumer and wholesale prices came out earlier this month.

More emphasis will be placed on June inflation data, which will arrive a few weeks before the next Fed meeting on July 25-26. Also, the next monthly jobs report is coming up, which will be out in two Fridays.

For now, traders are betting on the Fed raising rates by a quarter of a percentage point in July, according to data from CME Group. The Fed has already raised its key overnight interest rate to its highest level since 2007, although it refrained from a move last month. More importantly, much of Wall Street expects a hike next month to be the last of this cycle.

The Fed, meanwhile, has suggested it could raise rates two more times as inflation remains stubbornly high, even though it has fallen from its peak last summer. The difference in expectations is small, but each successive increase could have a much bigger impact on the economy than the previous one.

High rates undermine inflation by putting the brakes on the entire economy, and increase the risk of a recession if they stay too high for too long.

High rates have already contributed to several US banks failing, eroding confidence in the system. The manufacturing industry has also been shrinking for months and analysts say they don’t know what could break in the economy in the future under the weight of much higher tariffs.

“We have a slowing US economy, a slowing global economy, all with continued extreme inflation and high and rising interest rates,” said Clifford Bennett, chief economist at ACY Securities. “There is no bullish stock market scenario here.”

That’s even though the S&P 500 is up more than 20% since mid-October. That means that by one definition, Wall Street has moved into a “bull market,” what traders call a long-term bullish run for stocks.

Last week, however, the S&P 500 suffered its first week of losses in six weeks, after Fed Chairman Jerome Powell reiterated that the battle against inflation is not over and several central banks around the world raised interest rates. Many critics also said the stock market needed a breather after rising so far as fast as the economy has managed to avoid a recession thus far, largely because of a remarkably solid job market.

In the bond market, the yield on the 10-year Treasury fell from 3.74% late Friday to 3.73%. It helps set rates for mortgages and other important loans.

The two-year rate, which moves more than expected for the Fed, remained stable at 4.75%.

Indices in Europe on foreign stock markets were mixed. Equities in Shanghai fell 1.5%, but indexes elsewhere in Asia were more modest.

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AP Business Writers Yuri Kageyama and Matt Ott contributed.