Market Snapshot: Dow posts longest win streak in almost 3 months as investors brush aside signs of slowdown in China

What’s driving markets

Stocks began to recover in late-morning trading, reversing course from the open after disappointing economic news out of China had helped set a negative tone, with retail sales, investment and industrial output all slowing and missing forecasts. China’s central bank also trimmed lending rates.

Meanwhile, the New York Fed’s Empire State business conditions index, a gauge of manufacturing activity in the state, plummeted 42.4 points to negative 31.3 in August. Though the figure didn’t help sentiment, economists were taking it with a grain of salt.

The Empire State data “wasn’t entirely bad: deliveries times were steady for the first time in almost two years, employment managed to rise, and inflation pressures did not increase,” said Oren Klachkin, lead U.S. economist at Oxford Economics, in a note.

“At the same time, manufacturers were not cheerful about the outlook for the next six months,” Klachkin wrote. “We caution not to take too much away from this report since N.Y. manufacturing constitutes a small portion of the country’s manufacturing base.”

Concerns about slower demand from China pressured the energy sector, with WTI crude oil futures CL.1 dropping 3.7% to trade near $88 a barrel. The Energy Select Sector SPDR ETF
XLE,
-1.71%
fell 1.9%.

Read: Energy remains a sweet spot for investors. Here’s a list of ‘energized’ stocks to think about.

Stocks experienced renewed upward momentum in late-morning trading after the S&P 500 completed a four-week winning streak on Friday that delivered its best percentage advance for such a period since November 2020.

Similarly, the tech-heavy Nasdaq Composite sits near an almost four-month high after surging 22.6% off its mid-June low as of Friday. Stocks were buoyed last week as the U.S. consumer-price index and producer-price index showed inflation cooling, though still running quite hot.

“The good news on inflation coming on the heels of a very strong July payrolls report has reinvigorated belief in a ‘soft landing’ for the economy. This is an outcome that we thought was at least as likely as a recession, and now the markets are moving closer to pricing in this scenario,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, in a note.

“The risk is that the markets get ahead of themselves, especially with investor FOMO starting to kick in,” she wrote, referring to the phenomenon known as “fear of missing out.”

Read: Why BlackRock says the stock market’s big summer rally isn’t worth chasing

Technical indicators speak to the improved tone of late. The Cboe Volatility Index
VIX,
+2.20%,
a gauge of expected market volatility that usually rises when investors are fearful, hovered below its long-term average of 20 on Monday.

See: Can the stock market bottom without Wall Street’s fear gauge hitting ‘panic’ levels?

The breadth of the market’s latest bounce is also considered supportive, with Bespoke Investment noting the percentage of S&P 500 stocks trading above their 50-day moving average has jumped to 88% from just 2% on June 16th.

Also Friday, the S&P 500 closed above 4,231, retracing more than 50% of the 2022 selloff from its Jan. 3 record close to the June 16 low. Technical analysts noted that the S&P 500 in the past half-century hasn’t retraced 50% of a bear-market selloff and then gone on to set new cycle lows, though they warned that there was still potential for sharp losses and near-term volatility.

Read: Why stock market bulls are applauding the S&P 500’s close above 4,231

In other economic data, the National Association of Home Builders’ monthly confidence index fell 6 points to 49 in August, the trade group said Monday. It’s the first time since 2020 that it came in below a break-even measure of 50.

Companies in focus

Shares of Walt Disney Co.
DIS,
+2.68%
rose 2.8% after Dan Loeb of Third Point LLC, which liquidated a large stake in the entertainment giant earlier this year, disclosed he has “repurchased a significant stake” in the company and would work with Disney’s management team in pursuit of strategic changes.

Tesla Inc.
TSLA,
+4.17%
Chief Executive Elon Musk noted a company milestone on Sunday, tweeting that the electric-vehicle maker has produced more than 3 million vehicles, with a third of them made in China. Shares rose 2.8%.

Shares of Bed Bath & Beyond Inc.
BBBY,
+9.42%
rose 9.2%, putting the meme stock on track for a fourth-straight gain. The stock had run up 21.8% on Friday, and had soared 32.3% since it fell 14.2% on Aug. 9 to snap the longest win streak in 15 years. The home goods retailer’s meme stock is headed for the 13th gain in 14 sessions.

How other assets are faring

The 10-year Treasury yield
TMUBMUSD10Y,
2.780%
fell 7 basis points to 2.782%.

The ICE U.S. Dollar index
DXY,
+0.69%
rose 0.7%, and the stronger buck helped push gold
GC00,
-1.11%
down 1.1% to trade near $1,795 an ounce.

Bitcoin
BTCUSD,
-0.56%
rose above $25,000 for the first time since June, but then reversed, dropping 0.4% to $24,233.

In Europe, the Stoxx 600
SXXP,
+0.34%
ended 0.3% higher, while London’s FTSE 100
UKX,
+0.11%
finished up by 0.1%.

In Asia, the Shanghai Composite
SHCOMP,
-0.02%
ended fractionally lower, while the Hang Seng Index
HSI,
-0.67%
finished down by 0.7% in Hong Kong and Japan’s Nikkei 225
NIK,
+1.14%
advanced 1.1%.

Hear from Carl Icahn at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The legendary trader will reveal his view on this year’s wild market ride.

— Jamie Chisholm contributed to this article.