Wall Street ends sharply higher, dollar dips on UK U-turn, strong earnings
U.S. stocks surged on Monday, following the example of their overseas counterparts as strong earnings and a policy reversal from Britain’s new finance minister stoked investor risk appetite.
All three major U.S. stock indexes surged through the starting gate with sharp gains, while Treasury yields eased and the dollar lost ground.
“More and more economists are embracing recession,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “This market has discounted the worst that could happen – a global recession.”
“Another factor is seasonal,” Cardillo added. “Usually when the market has discounted everything – and I believe it has – usually (the last months of the year) are positive for the stock market.”
Stocks were primed for a strong open after Britain’s new finance minister Jeremy Hunt scrapped Prime Minister Liz Truss’s proposed tax cuts and reined in her energy subsidies, while Bank of America Corp (NYSE:BAC)’s posted consensus-beating third quarter results, having benefited from a spate of interest rate hikes from the Federal Reserve.
The Dow Jones Industrial Average rose 522 points, or 1.76%, to 30,156.83; the S&P 500 gained 93.95 points, or 2.62%, to 3,677.02; and the Nasdaq Composite added 337.59 points, or 3.27%, to 10,658.98.
European stocks rallied on the UK’s financial policy reversal. (EU)
“This lifted some clouds, but it doesn’t lift the political risk of this government staying in power for a sustained period of time,” Cardillo said.
Meanwhile, the easing yuan weighed on Asian markets.
The pan-European STOXX 600 index rose 2.11% and MSCI’s gauge of stocks across the globe gained 2.15%.
Emerging market stocks rose 0.42%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.1% lower, while Japan’s Nikkei lost 1.16%.
Treasury prices rose, tracking similar moves in the UK bond market, pushing benchmark Treasury yields lower for the first time in three days. [US/]
Benchmark 10-year notes last rose 11/32 in price to yield 3.961%, from 4.006% late on Friday.
The 30-year bond last rose 5/32 in price to yield 3.9651%, from 3.975% late on Friday.
Strength in the euro and sterling caused the greenback to lose ground against a basket of major world currencies.
The dollar index fell 0.88%, with the euro up 0.82% to $0.9799.
The Japanese yen strengthened 0.01% versus the greenback at 148.74 per dollar, while sterling was last trading at $1.1416, up 2.20% on the day.
China’s continuation of its loose monetary policy helped offset recession worries, sending crude prices higher. [O/R] (FRX)
U.S. crude rose 0.88% to $86.36 per barrel and Brent was last at $92.27, up 0.7% on the day.
Softness in the greenback gave a boost to gold prices. (GOL)
Spot gold added 1.3% to $1,663.10 an ounce.Brent crude oil prices came in at $91.46 a barrel on Friday, up nearly 10% from a recent low, after falling nearly a third between July and September. “There is an outsized possibility that crude oil prices will continue to rise, especially if demand worries don’t materialize to the extent some bears are expecting,” wrote analysts at TD Securities, who expect oil prices to hit $101 in 2023. Analysts at UBS Global Wealth Management expect oil prices to hit $110 by year-end.
Some fund managers remain skeptical that the energy sector can continue to outperform as the global economy slows amid central bank tightening. “We’re heading into a recession globally and that’s going to hurt the demand side,” said Burns McKinney, portfolio manager at NFJ Investment Group, which is increasing its overweight stance in dividend-paying technology companies like Texas Instruments and Cisco.
At the same time, the sell-off in the S&P 500 creates buying opportunities in consumer discretionary and large-cap tech stocks, which are more attractive over the long term than energy, said Lamar Villere, portfolio manager at Villere & Co. “We’re starting to see opportunities that aren’t harder to capture are useful,” he said.
However, others believe the fundamentals for the sector remain aligned and see more upside. Saira Malik, Nuveen’s chief investment officer, believes fund managers will remain lightly positioned despite recent gains in energy stocks. She is also betting that China’s economy will recover in the coming months, which will support global oil prices. “We still think energy has legs here,” she said.