Stocks climb with U.S. economy on ‘sound footing’

US equities climbed and Treasuries fell after data showing US business activity is robust even as growth moderates, further stoking confidence the world’s largest economy can nail a soft landing.

The S&P 500 edged 0.4% higher, trading in a narrow range after manufacturing data and comments from Fed officials on Monday. Among individual movers, shares of Intel Corp. gained 3.3% after Apollo Global Management Inc. was said to have offered to make a multibillion-dollar investment in the chipmaker. Constellation Energy Corp. led power companies higher after its deal with Microsoft Corp. was well received by analysts.

US business activity expanded at a slightly slower pace in early September, according to data released Monday, while expectations deteriorated and a gauge of prices received climbed to a six-month high. Investors are looking for fresh signs on the scope for further easing after the Federal Reserve’s half a percentage point interest-rate cut last week.

“This is a somewhat inconclusive report, and therefore it shouldn’t alter Fed expectations dramatically,” according to Vital Knowledge’s Adam Crisafulli. “The flash PMIs do suggest the US economy is on reasonably sound footing, especially compared to Europe.”

Traders have been wagering on nearly three-quarters of a point more in rate cuts by year end, a slightly more aggressive path than what policymakers have indicated.

Minneapolis Fed President Neel Kashkari signaled he backs lowering interest rates by another half percentage point by year end in an essay pointing to a weakening labor market and detailing his support for the central bank’s outsize cut.

Atlanta Fed President Raphael Bostic said that starting the central bank’s cutting cycle with a large step would help bring interest rates closer to neutral levels, but officials should not commit to a cadence of outsize moves. Further out this week, investors await the Fed’s preferred price metric and data on US personal spending, due on Friday.

The US dollar was little changed, while policy-sensitive two-year Treasury yields climbed.

“With the Fed’s first rate cut since 2020 in the history books, many investors may be thinking, ‘Now what?’,” said Chris Larkin at E*Trade from Morgan Stanley. “That will keep the spotlight on economic growth, especially the jobs market.”

In Europe, meanwhile, traders were digesting manufacturing data that came in worse than expected, spurring wagers on more aggressive rate cuts from the European Central Bank. The euro slumped while European stocks edged higher. Weak PMI data for France and Germany on Monday was followed by numbers that showed the euro-area’s private-sector economy shrank for the first time since March.

The common currency weakened as much as 0.7% against the dollar.

“The market is almost demanding a more aggressive rate cut, especially after what we have seen the Fed has done,” Marija Veitmane, senior multi-asset strategist at State Street, said on Bloomberg Television. The ECB “is definitely behind the curve,” she said.

French government bonds lagged peers after a new French cabinet that is a patchwork of conservatives and centrists was named late Saturday. Investors are concerned that were the government to collapse, it would jeopardize the administration’s ability to pass a budget through parliament over the coming weeks.