CNBC Daily Open: Growth stocks look hot but investors should be cautious

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Markets may be warming to growth stocks. And maybe they shouldn’t be.

• U.S. stocks closed Friday mixed. The Dow Jones Industrial Average was the only major index to rise. Asia-Pacific markets rose marginally on Monday. The Shanghai Composite traded 1.11% higher as China’s central bank left its loan prime rates unchanged.

• China’s economic recovery is picking up steam. The country’s securities regulator eased rules on domestic companies that want to list overseas. Chinese stocks, meanwhile, may jump as much as 24% by the end of this year, predicted Goldman Sachs strategists. All that demand from China, however, might drive up oil prices.

• U.S.-China diplomatic and trade relations remain strained, but at least their officials talking. Secretary of State Antony Blinken met with China’s top diplomat, Wang Yi, during the Munich Security Conference. Blinken said they had a “very direct, very clear” conversation about China’s infamous spy balloon. He added that Wang didn’t apologize for the incident.

• PRO Retail investors are flooding back to the stock market, investing an average of $1.51 billion a day, according to Vanda Research. These are the stocks most popular with them.

Stocks in the U.S. ended the week slightly lower. The Dow rose 0.39% on Friday. But it dipped 0.13% for the week, the first time it’s lost ground for three consecutive weeks since September. The S&P 500 slid 0.28%, giving it a two-week losing streak. The Nasdaq Composite fell 0.58%, but it rose 0.59% on the week, its sixth positive week in seven.

Which brings us to the strange relationship between the economy and markets today. A widely accepted rule on Wall Street is that the Nasdaq, stuffed full of tech stocks whose value rests on future earnings, is the most sensitive to interest rates. Yet it’s the only index that had a positive week, despite signs — like three-month highs on Treasury yields — that rates might end up higher than the Federal Reserve had projected. Meera Pandit, a JPMorgan strategist, said that this shows that investors are too optimistic about the markets, putting money into future-oriented growth stocks. Maybe they shouldn’t be — Pandit warned that “this is probably the overheat before the retreat in the economy.”

We’ll have a clearer picture of the U.S. economy this week. Earnings reports from retail giants Walmart and Home Depot will gauge consumer activity, while semiconductor firm Nvidia will indicate whether the rally in tech stocks can last. On Wednesday, minutes from the Fed meeting come out, and on Friday we’ll see the personal consumption expenditure price index, which is the Fed’s preferred inflation reading. Investors will pore over the data to find out if the economy is due for a soft landing, a hard landing — or if it’ll keep cruising.

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