Dow scores third day of gains ahead of coming inflation, retail-sales data

What drove markets

U.S. stock indexes ended higher on Monday — with consumer-discretionary, communication-services and several technology names leading the broader market higher — as traders braced for a busy week of economic data releases.

Tesla shares
TSLA,
+10.09%
closed up by 10.1% after Morgan Stanley upgraded the electric-vehicle giant’s stock to overweight from equal weight, while raising the price target to a Wall Street high of $400 per share from $250, basing most of that newfound optimism on Tesla’s new machine-learning supercomputer, Dojo.

Don’t miss: When will consumers stop buying more stuff? It’s a key question for the stock market in the week ahead.

Still, the stock market has a handful of near-term events that will help determine whether a rebound is justified. The August U.S. consumer-price index will be published Wednesday morning, while producer-prices and retail-sales reports for the same month are due on Thursday — all of which are likely to factor into the thinking of Federal Reserve policy makers as they consider whether to eventually adjust interest rates at their policy meeting next week.

The headline consumer-price index is forecast to accelerate to 0.6% in August from July’s 0.2% gain, while the core measure that strips out volatile food and fuel costs is expected to rise a mild 0.2% from a month earlier, according to a survey of economists by The Wall Street Journal. 

“The equity market has been really strong the first seven months of the year and had a healthy pullback in August, and we will see if we get encouraging signs this week that propel the market forward,” said Eric Sterner, chief investment officer at Apollon Wealth Management in Mount Pleasant, S.C., which manages around $5.3 billion in assets.

“It could go the other way, too, if inflation proves to be sticky, with the potential for more rate hiking in coming months,” Sterner said via phone on Monday. “It’s going to be a while before we get to the Fed’s 2% target on inflation. The labor market remains tight and consumer spending is holding up strong. So between that and higher energy prices, there’s still some upward pressure on inflation.” Meanwhile, an extended strike by the United Auto Workers union has the potential to “disrupt supply chains, be very disruptive to consumer spending, and put upward pressure on the automobile component of inflation.” 

A report from The Wall Street Journal on Sunday reaffirmed expectations in markets that the central bank is likely to pause rate increases at next week’s Federal Open Market Committee meeting, though policy makers are shifting toward a more balanced bias on rates. While the Summary of Economic Projections set to be released on Sept. 20 will likely show that an additional increase is still on the table, an unspecified number of officials are worried about raising rates and causing a downturn, the newspaper reported.

See: Why financial markets may be unprepared for a fourth-quarter ‘inflation surprise’

With no major U.S. economic data released on Monday, “there’s a lot of focus on what will happen with the data later this week to get a better sense of the short-term trajectory for stocks,” said Edward Moya, senior market analyst for the Americas at OANDA Corp. “We won’t see significant positioning until we get past some of those risk events.”

“Overall, the expectation is that we’re going to be seeing further weakness in the economy and core inflation readings should remain subdued,” Moya said via phone.

U.S. yields finished slightly higher on Monday after the Bank of Japan said it could end its negative interest-rate policy when it’s determined that its 2% inflation target can be achieved. The yield on the 2-year Treasury
BX:TMUBMUSD02Y
 rose 1.1 basis points to 4.993%, while the rate on the 10-year Treasury
BX:TMUBMUSD10Y
advanced 3 basis points to 4.287%. Yields move in the opposite direction to prices.

See: Dollar tumbles against yen after BOJ head hints that negative interest rates could end

The U.S. dollar
DXY
depreciated against the Japanese yen
USDJPY,
-0.87%
on Monday, while the 10-year Japanese government bond yield 
BX:TMBMKJP-10Y
climbed 5.5 basis points to 0.705% — a level not seen since at least 2014.

Companies in focus

• Qualcomm Inc.‘s 
  QCOM,
  +3.90%
  shares closed up by 3.9% after Apple Inc. 
  AAPL,
  +0.66%
  extended a deal to get modem semiconductors from the chip maker for at least three more years. Apple shares finished up by 0.7%.

• Walt Disney Company‘s
  DIS,
  +1.15%
  stock ended 1.2% higher after CNBC reported that its fight between cable giant Charter Communications 
  CHTR,
  +3.18%
  and Disney came to a close. The two companies reportedly reached an agreement to restore popular channels such as ESPN to the cable operator’s nearly 15 million subscribers. Class A shares of Charter Communications closed up by 3.2%.

• Class A shares of Hostess Brands Inc.
  TWNK,
  +19.14%
   finished 19.1% higher after the Twinkies and HoHos maker announced an agreement to be acquired by J.M Smucker Co. in a cash-and-stock deal valued at $5.6 billion.

• American depositary receipts of Alibaba Group Holding
  BABA,
  -1.49%
  closed down by 1.5% after the e-commerce giant said in a surprise announcement on Sunday that outgoing CEO Daniel Zhang will also be stepping down as chairman and chief executive of its cloud business unit.

Jamie Chisholm contributed.