Stocks rally on earnings, trade before Fed minutes

U.S. stocks rose on Wednesday as better-than-estimated earnings at retailers bolstered confidence in the world’s largest economy and investors assessed the latest news on trade. Treasuries dropped.

Consumer companies led gains in the S&P 500 Index as solid results from Target Corp. and Lowe’s Cos. defied recession fears. President Donald Trump said Wednesday that the economy is strong and the country will “probably” make a deal with China. Investors also awaited minutes from the Federal Reserve’s July meeting. Most European bonds fell after Germany saw anemic demand for a 30-year bond offering zero coupon. The British pound slipped as the possibility of a so-called no-deal Brexit picked up traction.

Traders piled into risk assets after taking a more cautious approach Tuesday amid a heated debate over the odds of a global slowdown. President Trump has consistently rejected a growing number of forecasts that his trade war with China and slowing global growth are pitching the U.S. economy toward recession. He’s also kept up his relentless attack on the central bank, claiming Wednesday that “the only problem we have is Jay Powell and the Fed.”
Goldman Sachs Group Inc. economists predict Fed officials will cut interest rates at each of their next two meetings — in part because of a desire to keep bond markets calm. Central bankers including Fed Chairman Jerome Powell will be in Jackson Hole, Wyoming from Thursday through Saturday, while Group of Seven leaders, with Trump among them, will hold talks in the French resort of Biarritz over the weekend and Monday.

“The key thing this week is the Jackson Hole speech by Fed Chair Powell,” Tuuli McCully, head of Asia-Pacific Economics at Scotiabank, told Bloomberg TV. “It will be interesting to hear if he sticks to the mid-cycle adjustment tone or if he will promise more.”
During the first quarter of the year, the 21-session correlation between the S&P 500 and five-year inflation-adjusted Treasury rate was intensely negative — that is, falling U.S. yields coincided with rising equity valuations as recession risk subsided with the shift to a growth-supporting stance from a tightening mode. That dynamic has since reversed. In August, the correlation has been persistently positive in an indication that concerns about the economic-growth outlook are top of mind for equity investors.