Investing.com -- U.S. stocks are seen opening in a mixed fashion Monday, stabilizing after a broad-based rally as investors digest more economic data with next week’s Federal Reserve policy-setting meeting in mind.
The main Wall Street indices closed firmly higher on Friday, following strong jobs data and after Congress passed a bill to lift the federal debt ceiling, signed into law by President Joe Biden over the weekend, thus averting a default which would have had economically disastrous repercussions.
The blue-chip Dow Jones Industrial Average rose 700 points, or 2.1%, on Friday, its best day since January. The broad-based S&P 500 gained 1.5%, posting its best week since March, while the tech-heavy Nasdaq Composite closed 1.1% higher.
The monthly jobs report showed the U.S. economy added an impressive 339,000 jobs last month, with the labor market in the world's largest economy remaining robust. Wage growth also eased, helping the idea that the Federal Reserve could pause a long-running campaign of interest rate hikes at its June policy meeting.
The Fed is entering its traditional blackout period ahead of next week’s meeting, but investors will study the ISM services PMI later Monday for clues on the health of the broader economy.
It is expected to point to a still solid rate of expansion, in contrast with the manufacturing PMI which contracted for a seventh straight month in May.
Despite this largely positive news, Morgan Stanley expects the U.S. equity rally to grind to a halt in the next quarter, hit by a sudden pullback in corporate earnings.
“We think that the downside risk to US earnings is now,” Morgan Stanley analysts wrote in a note published Sunday. “While a deteriorating liquidity backdrop is likely to put downward pressure on equity valuations over the next three months, we also see EPS disappointment ahead as revenue growth slows and margins contract further.”
Oil prices climbed sharply Monday, after Saudi Arabia, the world’s top exporter, pledged over the weekend to reduce its output to 9 million barrels per day in July, a cut of around one million barrels per day from its production levels last month.
This reduction, seeking to boost slumping oil prices, came as the Organization of the Petroleum Exporting Countries and their allies, including Russia, a group known as OPEC+, agreed to extend previously announced production cuts into 2024.
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