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Stocks Rise Strongly for a Second Day, Regaining Some Lost Ground Stocks Rise Strongly for a Second Day, Regaining Some Lost Ground
(about 2 hours later)
Stock markets rose sharply on Tuesday, extending gains from the previous day, as some investors bet that the rapid pace of interest rate increases that have raised borrowing costs for companies may soon begin to moderate. Stocks rose sharply on Tuesday, extending gains from the previous day and rebounding from a painful decline in September, as some investors bet that the rapid pace of interest rate increases that have raised costs for companies may soon begin to moderate.
The moves have set Wall Street off to a strongly positive start in October after an ugly end to September. The S&P 500 rose 2.4 percent in early afternoon trading, putting the index on track for two consecutive days of 2 percent gains for the first time since March. The S&P 500 rose 3.1 percent on Tuesday, it’s largest one day move since May of 2020 and the early recovery from the market turmoil induced by the coronavirus pandemic. The gain adding to a rise of 2.6 percent on Monday.
Some investors are beginning to anticipate that with some signs of inflation easing and economic growth slowing, a peak in interest rates may be sooner than expected, providing relief for companies that are expected to report a drop in quarterly earnings in their latest batch of reports, which they will begin to release this month. Some investors are beginning to anticipate that with some signs of inflation easing and economic growth slowing, a peak in interest rates may come sooner than expected. Such an outcome would provide relief for companies that are expected to report a drop in quarterly earnings in their latest batch of reports, which they will begin to release this month.
Investors have been looking for signs that might indicate that the Federal Reserve could let up with its campaign to raise interest rates. A government report on Tuesday showed a larger-than-expected decline in job openings in August, although hiring, quitting and layoffs remained steady. However, the view that inflation and interest rates have peaked has been undermined before, and rallies like this week’s have been short-lived.
Signs of a slowing labor market would reinforce the view that inflation could more consistently fall in the coming months, removing pressure on the Fed to tighten its policy so aggressively. Amazon is freezing corporate hiring in its retail business, according to a company memo, a division where about 20,000 job openings were recently posted. Facebook’s parent, Meta, told employees last week that it would freeze hiring and reduce budgets across most of its teams.
Other investors were wary that a market rally could be sustained if it is based on the notion of an economic slowdown altering the Fed’s thinking. Previous episodes of optimism over inflation being tamed have been dashed by the data, as well as comments by Fed officials that the fight against rapidly rising prices is far from over.
“With sentiment toward equities already very weak, periodic rebounds are to be expected,” said Mark Haefele, the chief investment officer at UBS Global Wealth Management. “But markets are likely to stay volatile in the near term, driven primarily by expectations around inflation and policy rates.”“With sentiment toward equities already very weak, periodic rebounds are to be expected,” said Mark Haefele, the chief investment officer at UBS Global Wealth Management. “But markets are likely to stay volatile in the near term, driven primarily by expectations around inflation and policy rates.”
Tuesday’s rally was driven by a rise in the stock prices of companies that suffered the most through the pandemic-induced slowdown and, curtailed by higher inflation and interest rates, have yet to fully benefit from the economic recovery that came from the loosening of Covid restrictions. The cruise operator Royal Caribbean rose 14 percent and the casino company Caesars Entertainment gained 11 percent. The airlines Delta and American both rose nearly 8 percent. Nevertheless, investors have been looking for indications that the Federal Reserve could let up with its campaign to raise interest rates. A government report on Tuesday offered hope, showing a larger-than-expected decline in job openings in August, although hiring, quitting and layoffs remained steady.
Twitter jumped more than 12 percent after Elon Musk proposed going ahead with a deal to acquire the company at the price originally agreed, potentially ending the legal fight over whether the billionaire could pull out of the agreement struck nearly six months ago. Signs of a slowing labor market would reinforce the view that inflation could more consistently fall in the coming months, removing pressure on the Fed to tighten its policy so aggressively. Amazon is freezing corporate hiring in its retail business, according to a company memo, a division where about 20,000 job openings were recently posted. Facebook’s parent, Meta, told employees last week that it would freeze hiring and reduce budgets across most of its teams.
Positive sentiment echoed around the globe, bolstered by Australia’s central bank’s smaller-than-expected interest rate increase on Tuesday that added to the sense that other central banks might also start to slow the pace of interest rate rises. Tuesday’s rally was driven by a rise in the stock prices of companies that suffered the most through the pandemic-induced slowdown and, curtailed by higher inflation and interest rates, have yet to fully benefit from the economic recovery that came from the loosening of Covid restrictions. The cruise operator Royal Caribbean rose more than 16 percent and the casino company Caesars Entertainment gained more than 11 percent. The airlines Delta and American both rose more than 8 percent.
Twitter jumped more than 22 percent after Elon Musk proposed going ahead with a deal to acquire the company at the price originally agreed, potentially ending the legal fight over whether the billionaire could pull out of the agreement struck nearly six months ago.
Positive sentiment echoed around the globe, bolstered by the Reserve Bank of Australia (RBA), the country’s central bank, raising interest rates by less-than-expected on Tuesday, adding to the sense that other central banks might also start to slow the pace of interest rate rises.
“The move to a lesser rate hike by the RBA, alongside the weak data on job openings, has given investors a narrative that we could be setting up for a downshift to a less aggressive path of rate hikes,” said Liz Ann Sonders, chief investment strategist at Charles Schwab.
Europe’s Stoxx 600 rose 3.1 percent and the Britain’s FTSE 100 gained 2.6 percent. In Asia, Japan’s Nikkei 225 gained 3 percent.Europe’s Stoxx 600 rose 3.1 percent and the Britain’s FTSE 100 gained 2.6 percent. In Asia, Japan’s Nikkei 225 gained 3 percent.
Oil prices — a large input into measures of inflation — also continued their rally on Tuesday. The price of West Texas Intermediate crude, the U.S. benchmark, rose 3.4 percent to above $86 a barrel, building on a 5 percent gain the day before on reports of supply cuts by major energy producers.Oil prices — a large input into measures of inflation — also continued their rally on Tuesday. The price of West Texas Intermediate crude, the U.S. benchmark, rose 3.4 percent to above $86 a barrel, building on a 5 percent gain the day before on reports of supply cuts by major energy producers.
The two-day rally for the S&P 500 still leaves the index down more than 20 percent this year, after it recorded a losing streak of three straight quarters, a grim milestone not seen since 2008.The two-day rally for the S&P 500 still leaves the index down more than 20 percent this year, after it recorded a losing streak of three straight quarters, a grim milestone not seen since 2008.
And economists remain concerned that with inflation still running well above the Fed’s target of 2 percent, the need to raise interest rates further could still tip the U.S. economy into a severe downturn.And economists remain concerned that with inflation still running well above the Fed’s target of 2 percent, the need to raise interest rates further could still tip the U.S. economy into a severe downturn.
“Central banks face a brutal trade-off in this new regime: either live with inflation, or the economic damage needed to tame it quickly,” analysts at BlackRock’s Investment Institute wrote in a recent report. “There’s no way around this.”“Central banks face a brutal trade-off in this new regime: either live with inflation, or the economic damage needed to tame it quickly,” analysts at BlackRock’s Investment Institute wrote in a recent report. “There’s no way around this.”