Markets soar to best day since summer | Company

NEW YORK — Wall Street stocks hit their best day in months on Monday after falling bond yields eased some of the pressure on markets.

The 2.6% jump in the S&P 500 was the biggest since July, the latest swing in a scattered market that has mostly fallen this year on worries about a possible global recession. Wall Street’s main health measure was coming off its worst month since the coronavirus crashed through markets in early 2020 and is still down nearly 23% for the year.

The Dow Jones Industrial Average jumped 2.7% and the Nasdaq composite gained 2.3% in Monday’s broad-based rally that swept the vast majority of U.S. stocks higher.

Falling Treasury yields, which jumped at a speed that rattled the market for most of the year, provided some respite. The yield on the 10-year Treasury, which helps set rates for mortgages and many other types of loans, fell to 3.64% from 3.83% on Friday evening. It hit 4% last week after starting the year at just 1.51%.

A weaker-than-expected U.S. manufacturing report helped boost markets, along with data showing a drop in construction shipments. While this may sound daunting for the economy, it could mean the Federal Reserve won’t have to be as aggressive in raising interest rates to combat high inflation that is hurting household finances.

By raising rates, the Fed makes it more expensive to buy a house, a car, or most other things bought on credit. The hope is to slow the economy just enough to starve inflation of the purchases needed to keep prices rising so quickly. But the Fed also risks causing a recession if it goes too far.

The Fed has already cut its main overnight interest rate to a range of 3% to 3.25%, from virtually zero last March. Most traders expect it to be more than a percentage point higher early next year.

The two-year Treasury yield, which more closely tracks expectations for Fed action, fell to 4.11% from 4.27% on weaker-than-expected reports on the economy.

Besides stocks, falling rates also drive up the prices of everything from cryptocurrencies to gold, which can suddenly look a bit more attractive when bonds are yielding less income.

Shares of high-growth companies and particularly risky or expensive investments were the most affected by rate changes. Bitcoin rebounded on Monday on the reprieve in yields, while tech stocks made the biggest push to lift the S&P 500. Apple and Microsoft both rose more than 3%.

In total, the S&P 500 climbed 92.81 points to close at 3,678.43. The Dow gained 765.38 to 29,490.89 and the Nasdaq rose 239.82 to 10,815.43.

Still, cross-currents continue to run through the markets, and analysts largely expect the sharp swings in prices to continue.

Crude oil prices jumped on Monday amid speculation that major oil-producing nations could soon announce production cuts. This adds upward pressure on inflation.

It also lifted shares of energy companies to strong gains. Exxon Mobil jumped 5.3% and Chevron 5.6%.

Monday’s rally came despite an 8.6% decline for Tesla, one of Wall Street’s most influential stocks due to its massive market value. The electric vehicle maker delivered fewer vehicles from July to September than investors expected.

More turmoil for the markets could arrive on Friday, when the latest update on the US job market is released. Along with its inflation reports, the US government jobs report has been one of the most anticipated data on Wall Street each month.

This will be the last jobs report before the Fed makes its next interest rate decision, scheduled for Nov. 2, and continued strength would give the central bank more leeway to keep rising. Traders say the most likely move is a fourth straight increase of a whopping three-quarters of a percentage point, triple the usual move.

For markets to meaningfully move higher, many investors say they need a break in inflation that forces the Fed to back off its aggressive course.

Such hopes of a Fed “pivot” by investors have resurfaced several times this year, only to be dashed by renewed accelerations in inflation.

But with tensions mounting in financial markets as central banks around the world raise rates in concert, conditions have entered “the danger zone where ‘bad things’ are happening”, according to equity strategist Michael Wilson. at Morgan Stanley.

This could cause the Fed to wink at some point. The problem, says Wilson, is that another force weighing on the markets could soon manifest itself: falling corporate earnings.

A series of challenges ranging from rising interest rates to the rise in the value of the U.S. dollar could prepare “the freight train of the impending earnings recession,” he wrote in a report. Companies are now preparing to report in the coming weeks how much they earned over the summer, and analysts have lowered their expectations.

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