Energy, financial stocks lift Wall St after BOJ policy surprise
Wall Street’s main indexes edged higher on Tuesday, led by energy and financial stocks, after the Bank of Japan changed its monetary policy in a surprise move, raising long-term interest rates and… will increase.
Major US equity averages marked their fourth straight session of losses on Monday as investors shied away from riskier bets, worried that the Federal Reserve’s interest rate hike could push the US economy into recession.
The BOJ decided to allow 10-year bond yields to move in a wider band of 50 basis points to either side of its 0% target, with no changes expected at its policy meeting on Tuesday.
Major S&P sectors’ energy and materials indices gained 1.6% and 0.8% as crude oil and metals prices rose against a weaker dollar.
Financial stocks rose 0.9% as banks benefited from a rise in Treasury yields.
“Raising the benchmark rate is something they haven’t been doing, so it looks like the world is on the same page and raising the coordinated interest rate to combat inflation,” said Kim Forrest, chief investment officer at Bokeh Capital. Is.” Partner in Pittsburgh.
“We are slowly coming out of processing the Fed’s dovishness. The Fed has managed to slow down the economy, so it is likely that earnings estimates (for Q4) are going to come down. The question is by how much?” “
The Fed struck a dovish tone at its policy meeting last week, saying it expected interest rates to remain on hold for a longer period of time, sparking a selloff in stock markets.
Money market participants see a 61% chance that the Fed will raise its key benchmark rate by 25 basis points to 4.50%-4.75% in February, keeping the terminal rate at 4.9% through May 2023.
Treasuries fell after the BOJ’s surprise move, with the benchmark 10-year Treasury yield rising to a three-week high of 3.68%.
U.S. single-family homebuilding fell to a 2-1/2-year low in November and permits for future construction fell as higher mortgage rates continued to dampen housing market activity.
At 10:25 a.m., the Dow Jones Industrial Average was up 121.38 points, or 0.37%, at 32,878.92, the S&P 500 was up 13.09 points, or 0.34%, at 3,830.75, and the Nasdaq Composite was up 34.91 points, or 0.33. %, at 10,580.94.
Tesla Inc lost 2.6% after at least three brokerages slashed the electric vehicle maker’s target price to between $177 and $285 on weakness in demand and rising risk concerns from Elon Musk’s Twitter distraction.
Wells Fargo & Co slipped 0.7% after US regulators fined it $3.7 billion, citing widespread mismanagement of auto loans, mortgages and deposit accounts.
The markets are expected to see a drop in volumes this week ahead of the Christmas and New Year holidays.
Advancing issues outnumbered the 1.54-to-1 ratio on the NYSE and the 1.58-to-1 ratio on the Nasdaq.
Shares of U.S. banks are taking a beating in December, as worries over an expected recession and weakening profit margins dull the industry’s appeal.
The extent of such pressure will become clearer next month when banks report fourth-quarter earnings. In another potential stumbling block for the group, some of the banks that lent Elon Musk $13 billion to buy Twitter are preparing to book losses on the loans this quarter, Reuters reported this week.
Investors will learn more about the economy’s health next week, with data due on housing and consumer confidence.
Of course, banks’ discounted shares may prove alluring for investors who believe the economy will remain on stable footing.
The S&P 500 banks index trades at about nine times forward earnings estimates, below its long-term average P/E of 12 times and well lower than the roughly 17 times for the overall S&P 500, according to Refinitiv Datastream.
King Lip, chief strategist at Baker Avenue Wealth Management, said his firm recently bought bank stocks, convinced that any hit to U.S. growth will likely be moderate.