Market Snapshot: U.S. stocks see bulk of morning gains vanish as investors await next U.S. inflation report

What’s driving markets

Stocks struggled to hold modest gains after all three major stock indexes initially opened higher on Monday, with investors gauging whether recent pessimism over corporate prospects has been overdone.

Read: A surging stock market is on the verge of signaling a ‘huge’ move — but there’s a catch

Traders also were hoping that a robust labor market would challenge recent evidence of a slowing U.S. economy, while a generally well-received second-quarter company earnings season comes to a close.

But last week’s strong jobs report for July also makes it more difficult for investors to entertain the idea the Fed will relent on its rate-hike plans anytime soon, according to Morgan Stanley equity strategist Michael Wilson. “The strong labor report on Friday suggests companies have yet to cut labor in an effort to protect margins while simultaneously delaying any Fed pivot,” Wilson wrote in a note.

“The rally in stocks has been powerful and has investors believing the bear market is over and looking forward to better times,” the strategist said. “However, we think it’s premature to sound the all-clear simply because inflation has peaked. The next leg lower may have to wait until September when our negative operating leverage thesis is better reflected in earnings estimates. However, with valuations this stretched, we think the best part of the rally is over.”

See: Suddenly, stock-market investors are wrestling with ‘boomflation’ after hot July jobs report

The market rally now faces some technical challenges heading into Wednesday’s consumer price index report for July, some observers say. On Monday, the S&P 500 briefly broke through the 4,200 resistance level, putting its 200-day moving average into view.

“For investors, economic and policy uncertainty translating into continued trade in the S&P 500 below 4,200 and 4,340 leaves open the possibility of lower lows,” said analysts at Evercore ISI.

Investors were also assessing the implications of a massive healthcare, climate and tax package that passed the Senate on a party-line vote Sunday, handing President Joe Biden a political victory. The package is expected to win approval in the Democratic-controlled House.

It includes an extension of a tax credit for the purchase of electric vehicles. Shares of Tesla Inc. TSLA, +1.13% were up 3.8%.

“We started out strong partly because of the momentum from environmental stocks that benefited from the tax bill over the weekend,” said Jay Hatfield, founder, chief executive and portfolio manager at Infrastructure Capital Advisors. “And then we stalled out around a resistance point around 4,180. Now, everyone is waiting for CPI, and we’re going to be in a pretty tight trading range until Wednesday,” Hatfield said via phone.

Earnings season, which has so far been characterized as not as bad as feared, is moving into the home stretch. Some 435 members of the S&P 500 had reported second-quarter results as of Friday morning, and year-over-year growth in the blended estimate for earnings per share, which includes reported results and estimates of still-to-be-reported results, stands at 6.8%, according to FactSet. That’s up from an estimate of 5.6% as of March 31.

Also read: 5 things we’ve learned from earnings season so far: How big an impact is inflation having?

Supporting the market mood is a calmer tone in sovereign bonds, with the U.S. 10-year Treasury yield TMUBMUSD10Y, 2.764%, which had jumped on Friday following the jobs data, easing 8 basis points to 2.76%.

Companies in focus

• Shares of AMC Entertainment Holdings Inc. AMC, +8.78% jumped 15.3%, putting them on track for a sixth straight gain to the highest close in more than four months. The rally comes after the movie theater operator announced last week it will issue a special “APE” dividend, in the form of AMC Preferred Equity Units that will trade on the New York Stock Exchange.
• Fellow meme-stock favorite GameStop Corp. GME, +8.40% jumped 11.5%.
• Nvidia Corp. NVDA, -8.24% shares dropped 7.7% after the semiconductor company disclosed that it expects to fall well short of revenue expectations for its latest quarter, largely due to gaming weakness.
• Class A shares of Warren Buffett’s Berkshire Hathaway Inc. BRK.A, +0.23% rose 0.5% even after the company reported a $43.76 billion loss in the second quarter on Saturday as the paper value of its investments plummeted. Berkshire’s operating earnings, which exclude some investment results, rose to $9.28 billion from $6.69 billion a year earlier. Buffett has said operating earnings are his preferred gauge for measuring performance.
• Palantir Technologies Inc. PLTR, -13.73% shares were down 12.2% after the software company posted a surprise adjusted loss on a per-share basis and delivered revenue guidance that fell short of the consensus view.

How other assets are faring

• The ICE Dollar index DXY, -0.17% fell 0.3%.
• Bitcoin BTCUSD, +2.90% advanced 2.9% to $23,940.
• The U.S. oil benchmark CL.1 was up 1.3% to trade at $90.16. Gold futures ended up 0.8%, settling at $1,805.20 an ounce.
• Asia markets posted a mixed finish after another COVID-19 lockdown in a part of China impacted sentiment. Hong Kong’s Hang Seng HSI, -0.77% closed down by 0.8%, while Japan’s Nikkei 225 NIK, +0.26% finished up by 0.3%.
• In Europe, the Stoxx 600 SXXP, +0.74% finished 0.7% higher, while London’s FTSE 100 UKX, +0.57% gained 0.6%.

— Jamie Chisholm contributed to this article.