Stocks gained on Monday, with investors at least temporarily looking past concerns over the growth outlook and ahead to more second-quarter earnings.
The S&P 500, Dow and Nasdaq each eked out record intraday and closing levels, shaking off earlier declines.
Over the past several weeks, investors have been appraising the likelihood that the spread of the Delta variant would derail the economic recovery and curb the rally so far for the year-to-date in U.S. equities. These concerns set off a rout last week, with stocks dropping by the most since October before ending the week at record levels.
However, some strategists suggested the latest stretch of virus-related volatility in markets would prove temporary.
"We think the Delta variant should pose a minimal risk to the U.S. equity market," Goldman Sachs U.S. equity strategist David Kostin wrote in a note Monday. "From an economic perspective, widespread vaccinations and strategies focused on containment suggest limited medical and economic downside even if infections continue to rise."
"From a flows perspective, robust household cash balances and corporate buyback authorizations should continue to support inflows for equities, increasing the likelihood that market participants perceive a pullback as a buying opportunity," he added.
Later this week, investors will hear from Federal Reserve officials over the path forward for monetary policy, which will likely be informed by the increased concerns over the Delta variant and peaking economic growth rates. Many are betting that these downside risks will overshadow worries over inflation, leaving central bankers in a wait-and-see mode before announcing any changes to their crisis-era asset purchase program and near-zero interest rate policies.
"[Federal Reserve Chair Jerome] Powell’s mid-July Congressional testimony raised the prospect that the statement would introduce an asymmetric policy bias: standing prepared to adjust policy if the Fed 'saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal,'" JPMorgan economist Michael Feroli wrote in a note.
"Since that testimony the rise of the delta variant has injected some downside growth risks into the outlook, and this should help the doves argue for retaining the current symmetric policy bias," which would focus on creating conditions to maximize employment while also keeping inflation in check, he added.
Traders are also set to focus on a packed schedule of corporate earnings results this week, which will include mega-cap technology companies like Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) in addition to a host of other companies including UPS (UPS), 3M (MMM), Starbucks (SBUX) and Boeing (BA).
Earnings season so far has been especially strong, helping support the indexes' march to new all-time highs even in light of recent economic concerns. So far, 24% of companies in the S&P 500 have reported second-quarter results, and of these, 88% have topped Wall Street's earnings per shares estimates, according to an analysis from FactSet as of Friday. The blended earnings growth rate for the blue-chip index, which includes both companies' reported growth rates and the estimated rates for the companies have yet to report, stands at 74.2%, which would be the highest since the fourth quarter of 2009.
4:04 p.m. ET: S&P 500, Dow and Nasdaq reach fresh record highs as investors look ahead to Big Tech earnings
Here were the main moves in markets as of 4:04 p.m. ET:
S&P 500 (^GSPC): +10.52 (+0.24%) to 4,422.31
Dow (^DJI): +82.57 (+0.24%) to 35,144.12
Nasdaq (^IXIC): +3.72 (+0.03%) to 14,840.71
Crude (CL=F): +$0.09 (+0.12%) to $72.16 a barrel
Gold (GC=F): -$4.20 (-0.23%) to $1,797.60 per ounce
10-year Treasury (^TNX): -1 bps to yield 1.2760%
11:59 a.m. ET: Stocks move higher, reversing earlier declines
Here's where markets were trading as of 11:59 a.m. ET:
S&P 500 (^GSPC): +7.68 (+0.17%) to 4,419.47
Dow (^DJI): +24.89 (+0.07%) to 35,086.44
Nasdaq (^IXIC): +13.13 (+0.09%) to 14,849.95
Crude (CL=F): -$0.32 (-0.44%) to $71.75 a barrel
Gold (GC=F): -$3.10 (-0.17%) to $1,798.70 per ounce
10-year Treasury (^TNX): -1 bp to yield 1.275%
10:17 a.m. ET: New home sales unexpectedly decline to hit lowest level since April 2020
New home sales posted a surprise third straight monthly decline in June, with tight inventory levels and skyrocketing home prices weighing on the housing market.
New home sales fell 6.6% in June over May, according to the Commerce Department's monthly report. This came following a 7.8% drop in May, which was revised down from a 5.9% drop reported previously.
The level of new home sales was at a seasonally adjusted 676,000 in June, or the lowest in 15 months. Sales in the Northeast region led the drop, with these falling by 27.9% month-on-month. Sales in the South and West fell 7.8% and 5.1%, respectively, while new home sales in the Midwest ticked up by 5.7%.
9:30 a.m. ET: Stocks open lower
Here were the main moves in markets shortly after the opening bell:
S&P 500 (^GSPC): -4.55 (-0.1%) to 4,407.24
Dow (^DJI): -73.97 (-0.21%) to 34,987.58
Nasdaq (^IXIC): -28.33 (-0.22%) to 14,804.29
Crude (CL=F): -$0.45 (-0.62%) to $71.62 a barrel
Gold (GC=F): -$0.4 (-0.02%) to $1,801.40 per ounce
10-year Treasury (^TNX): -1.2 bps to yield 1.27%
9:24 a.m. ET: Goldman Sachs cuts U.S. GDP outlook for Q3, Q4 2021 as service sector recovery lags
Goldman Sachs cut its outlook for U.S. economic growth for the third and fourth quarters of 2021, suggesting that the ongoing spread of the coronavirus and risk of further infections with the Delta variant would weigh on the service sector recovery.
Goldman Sachs economist Jan Hatzius wrote in a note he expects gross domestic product (GDP) growth will be 8.5% in the third quarter and 5.0% in the fourth. Each of these represent reductions of one percentage points compared to previous estimates. Still, however, the firm's 2021 forecast for GDP growth was 6.6% on a yearly basis.
"We have long expected growth to peak in a mid-year boom fueled by vaccination and fiscal support," Hatzius said. "But the subsequent deceleration now looks likely to be a bit sharper because the goods-to-services rotation is likely to be less seamless."
8:44 a.m. ET: 'The only question that matters to U.S. stocks' is about earnings: DataTrek
Earnings growth has been a critical component to U.S. equities' move higher, with the index up 17.5% for the year-to-date and trading near record levels even as concerns over the coronavirus and its impact on the economy persist. And according to at least one analyst, corporate earnings – and earnings estimates – still have more room to rise, as heightened demand during the recovery and companies' pandemic-era cost-cutting measures help generate ongoing profits.
"How much higher can S&P 500 earnings estimates go? Not to oversimplify, but this is essentially the only question that matters to US stocks and, by extension, global equities," DataTrek Co-founder Nicholas Colas wrote in a note Monday.
"Analysts have been cautious about raising numbers given a lack of earnings guidance and macro uncertainties, and that’s fair enough. But expecting zero growth from Q1 strikes us as overly pessimistic," Colas added.
He noted that S&P 500 quarterly bottom-up earnings per share estimates for the second quarter of 2021 through the first quarter of 2022 averaged to $49.27 per share, or only a tick higher than the first quarter of 2021's $49.06.
"Earnings leverage – how much more quickly earnings grow relative to revenues – is the key issue to consider," he added. "Wall Street analysts are expecting 13% sales growth and 26% earnings growth versus Q3 2020. That implies 2:1 leverage, but so far in Q2 we’re seeing almost 5:1 aggregate leverage on earnings surprises (19 percentage points of earnings upside on 4 points of revenue upside)."
7:44 a.m. ET Monday: Stock futures fall
Here were the main moves in markets, as of 7:44 a.m. ET:
S&P 500 futures (ES=F): -10 points (-0.23%) to 4,393.00
Dow futures (YM=F): -127.00 points (-0.36%) to 34,824.00
Nasdaq futures (NQ=F): -14.75 points (-0.1%) to 15,083.25
Crude (CL=F): -$0.33 (-0.46%) to $71.74 a barrel
Gold (GC=F): +$7.20 (+0.4%) to $1,809.00 per ounce
10-year Treasury (^TNX): -3.7 bps to yield 1.248%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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