Dow opens in the green, but S&P 500 and Nasdaq regress after last week's gains

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9.40am: Traders await big retail earnings week

Shortly after the opening bell, the Dow opened the week up 7 points, less than 0.1%, at 33,754, while the Nasdaq Composite dipped 114 points, 1%, to 11,209 and the S&P 500 slid 12 points, 0.3%, to 3,981.

Despite the slow start, market sentiment is positive overall, according to Nationwide chief of investment research Mark Hackett.

“A notable shift has occurred in the market, with investors increasingly risk-on across asset classes,” Hackett said, according to CNBC. “Technical indicators have improved dramatically, with investor sentiment, momentum, breadth, and risk factors all showing notable improvement.”

Investors are also reacting to the 2022 midterms, which have yet to be resolved as control of the House appears likely to be narrowly in Republican hands but remains too close to call. In the Senate, Democrats appear likely to hold 50 seats, with a runoff in Georgia that could make that number 51.

Earning season is also in full swing, with retailers including Walmart Inc, The Home Depot Inc, Target Corporation and Lowe’s Companies Inc reporting this week. 

6.30am: Quiet start

US stocks are expected to open lower on Monday after last week’s strong gains in the wake of softer-than-expected inflation data for October, which strengthened expectations that US rate setters will scale back on interest rate hikes.

Futures for the Dow Jones Industrial Average were 0.3% lower in pre-market trading, while those for the S&P 500 were down 0.4%, and contracts for the Nasdaq-100 fell 0.7%. 

“Market mood outside crypto is extremely joyful after last week’s inflation data surprised investors to the downside and China announced to relax Covid measures, and boost its shattered property sector,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“Although US inflation remains relatively high to contain a perhaps premature bull run on dovish Fed expectations, news from China could help keep the mood nice and sweet,” she added.  

Notably, US president Joe Biden and China’s president Xi Jinping will hold talks today on the sidelines of the G20 summit in Bali. Talks could go either way; they could either boost, or hit risk appetite in Chinese, and global assets. Investors will be watching developments closely.

The path for US interest rates continues to have a big impact on share prices. The Federal Reserve has delivered four 75 basis point interest rate hikes this year as it tries to fight runaway inflation.

Investors worry that the higher cost of borrowing will dent economic growth. While inflation remains elevated, it is starting to show signs of a softening. In data out last week, headline inflation fell to 7.7% in October, versus 8.0% expected by analysts and from 8.2% printed a month earlier, stoking expectations that US rate-setters will scale back on further interest rate hikes.

Contact the author at jon.hopkins@proactiveinvestors.com