Stocks Struggle to Find Direction Amid Crude Rally: Markets Wrap

(Bloomberg) — The surge in energy prices continued to fuel equity-market volatility amid an intensifying debate on whether inflation pressures will be transitory or derail the economic recovery.

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An earlier rally in the S&P 500 waned, with trading volume almost 15% below the average of the past month. West Texas Intermediate crude climbed above $81 a barrel to a seven-year high. Aluminum jumped to the highest since 2008, while Chinese coal futures hit a record. The cash Treasury market is closed for a holiday.

The widespread rally in commodities has unsettled traders, with supply bottlenecks raising doubts on whether stock valuations can be stretched any further. Meantime, policy makers are seeking to balance the withdrawal of stimulus with concerns that growth may have peaked amid inflation pressures. While the surge in energy costs may slow the recovery, it won’t cause a recession, said Mark Haefele, chief investment officer at UBS Global Wealth Management.

“Surging global energy prices along with higher interest rates have created additional angst among investors,” said Craig Johnson, technical market strategist at Piper Sandler & Co. We don’t believe price pressures and supply constraints “will offset constructive demand and growth trends. Earnings will be the next key test for the broader equity market,” he added.

The third-quarter earnings season kicks off this week, with results from financial firms. Investors are looking for signs that loan growth is starting to stage a comeback at the biggest U.S. banks. Executives have pointed to early indications that small businesses and individual consumers are taking on debt again after government stimulus checks depressed demand during the Covid-19 crisis.

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Read: Guidance Could Be ‘Ugly’ This Earnings Season, BofA Says

Elsewhere, Bitcoin climbed above $57,000 for the first time since May. As in past rallies, a myriad of reasons are being cited for the surge — from an easing of concern about regulatory efforts in the U.S. and China, as well as renewed optimism about a possible Securities and Exchange Commission approval of a cryptocurrency exchange-traded fund.

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Here are a few events to watch this week:

• Bank of Korea policy decision and briefing Tuesday

• Atlanta Fed President Raphael Bostic speaks on inflation Tuesday

• U.S. FOMC minutes and CPI Wednesday

• China PPI, CPI Thursday

• U.S. initial jobless claims, PPI Thursday

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 1 p.m. New York time

• The Dow Jones Industrial Average was little changed

• The MSCI World index rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro was little changed at $1.1564

• The British pound was little changed at $1.3611

• The Japanese yen fell 1% to 113.40 per dollar

Bonds

Commodities

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