U.S. stocks rose sharply on Tuesday as bond yields fell amid hopes central banks may get less aggressive with their interest rate hiking plans.
How are stocks trading
-
The Dow Jones Industrial Average
DJIA,
+2.34%
rose 469 points, or 1.6%, to 29,960. -
The S&P 500
SPX,
+2.61%
gained 70 points, or 1.9%, to trade at 3,748. -
The Nasdaq Composite
COMP,
+6.76%
advanced 259 points, or 2.4%, to 11,074.
On Monday, the Dow surged rose 765 points, or 2.7%, while the S&P 500 jumped 2.6% and the Nasdaq Composite gained 2.3%. The S&P 500 enjoyed its biggest daily percentage gain since July 27 but remains down 22.8% for the year to date.
What’s driving markets
The S&P 500 index was attempting Tuesday to extend the previous session’s 2.6% per cent bounce off 22-month lows.
There were multiple factors driving the rally at the start of the week, said Jim Reid, strategist at Deutsche Bank, including oversold conditions and easing market tensions in Europe, “but the main one was growing speculation that central banks could soon pivot towards a more dovish stance, particularly after the market turmoil over the last couple of weeks.”
The Fed, alongside most of its developed-economy peers, in the past several months has been hiking interest rates aggressively to combat inflation running at 40-year highs, and the consequent surge in bond yields has triggered a bear market across equity benchmarks.
Skeptics, however, see little evidence the rise is more than another bear-market bounce.
“It mainly looked to me like short-covering once again. We seem to see these types of moves pretty often, and maybe it turns into something, but I doubt it,” said Michael Kramer, founder of Mott Capital Management, in a note.
Major stock indexes are mired in a bear market, but have seen sharp rallies, including a bounce of more than 17% by the S&P 500 off its mid-June low before its latest leg down.
Some investors are hoping the peak of this monetary tightening cycle may be in sight.
Supporting this narrative was a weak U.S. manufacturing survey on Monday, which Barclays noted showed easing costs pressures amid shorter delivery delays and order backlogs.
The U.S. ISM manufacturing index described expansion slowing faster than investors expected, and “gave a positive spin to the market,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“I believe that this is an important sign that despite the Federal Reserve officials’ strongly hawkish rhetoric, many investors no longer believe that the Fed could continue tightening at the current speed. That’s a good ingredient for a global market rebound,” Ozkardeskaya added.
Adding to this notion was news from Down Under, where the Reserve Bank of Australia delivered a less-than-expected 25 basis point interest rate hike at its meeting on Tuesday, helping stocks in Asia to move higher and bond yields lower.
See: What does a pivot look like? Here’s how Australia’s central bank framed a dovish surprise
Investors were hoping such caution may have to be adopted by the Fed. The policy-sensitive 2-year Treasury yield
TMUBMUSD02Y,
which ended last week around 4.28%, fell 2.9 basis points to 4.08%.
U.S. economic data set for release on Tuesday include the job openings and quits data, alongside factory orders, all for August and all due at 10 a.m. Eastern Time.
Fed speakers include Fed Gov. Philip Jefferson at 11:45 a.m. and San Francisco Fed President Mary Daly at 1 p.m.
Companies in focus
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Online secondhand-fashion marketplace Poshmark Inc.
POSH,
+13.29%
has agreed to be bought by South Korean internet company Naver in a $1.2 billion deal, the companies announced late Monday. Poshmark shares jumped over 13%.
