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Stocks Notch Their Best Three-Day Rally Since May: Markets Wrap

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·4 min read
Stocks Notch Their Best Three-Day Rally Since May: Markets Wrap
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(Bloomberg) -- Stocks rose amid a rally in megacaps as strength in the corporate sector buoyed investor sentiment. Treasuries gained as data pointed to weakness in the US economy.

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The S&P 500 posted its biggest three-day gain since May 27, led by tech and consumer discretionary stocks on Thursday. Tesla Inc. topped the leaderboard after its quarterly results beat estimates, with Apple Inc. and Amazon.com Inc. also pushing higher ahead of earnings due next week. Stocks briefly hit session lows in morning trading on news of US President Joe Biden testing positive for Covid.

In post-market trading, Snap Inc. plunged more than 20% after the company reported revenue that missed estimates, citing a slowdown in the ad industry. That weighed on social-media peers Meta Platforms Inc. and Pinterest Inc.

Treasury yields dropped, with the 10-year rate sinking 14 basis points to 2.88% after a knee-jerk move higher following the European Central Bank’s greater-than-expected rate hike. Data showing a rise in jobless claims suggested softening in the labor market, while the Philadelphia-area manufacturers’ outlook for business conditions slumped to the lowest since 1979 and the Conference Board’s leading economic index fell more than estimated.

Markets were buffeted in early trading after the ECB hiked rates by 50 basis points, the first increase in 11 years and biggest since 2000. It comes as a brewing political crisis in Italy ramps up the pressure on the ECB to shield the most vulnerable eurozone members from market speculation through a new crisis management tool. The euro initially climbed on the decision before paring those gains against the dollar.

“There’s enough circuit breakers in the market, particularly when you think about the strength of the consumer, the strength of the corporate sector and how well telegraphed this potential recession has been,” Stephen Parker, head of advisory solutions at JPMorgan Private Bank, said on Bloomberg TV. “Because of that, a lot of that pain has already been felt by markets.”

The S&P 500 has climbed about 9% from a multi-year trough in mid-June amid earnings optimism and speculation the Federal Reserve will take a more measured approach to tightening policy. Whether the market has bottomed remains open to debate, but over the past month yields have fallen and rates markets have discarded bets for a full percentage point hike when the Fed meets next week.

Still, sentiment remains fragile amid accelerating inflation and the prospect of a steep downturn in global economies as well as the geopolitical risks, notably in Europe. The resumption of Russian gas exports to the region through Nord Stream could provide some relief for the continent that’s racing to store the fuel before the winter.

More market commentary

  • “This is where we are, this is the world we live in, where there is going to be daily volatility like this,” Megan Horneman, CIO at Verdence Capital Advisors, said by phone. “The market is still trying to figure out where to go. We don’t know, from an inflation standpoint, we don’t know how far the Fed is going to have to go, the ECB is now getting quite aggressive.”

  • “The ECB did what’s needed, but let’s be clear - they have no good options,’ said James Athey, investment director at Abrdn. “The stagflation trade-off they face is horrible, the worst error they could make is to allow inflation to become unhinged. But dealing with inflation clearly hurts growth. Either way, equities aren’t a great investment.”

Some of the main moves in markets:

Stocks

  • The S&P 500 rose 1% as of 4 p.m. New York time

  • The Nasdaq 100 rose 1.4%

  • The Dow Jones Industrial Average rose 0.5%

  • The MSCI World index rose 0.8%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2%

  • The euro rose 0.3% to $1.0211

  • The British pound was little changed at $1.1979

  • The Japanese yen rose 0.5% to 137.55 per dollar

Bonds

  • The yield on 10-year Treasuries declined 12 basis points to 2.90%

  • Germany’s 10-year yield declined three basis points to 1.22%

  • Britain’s 10-year yield declined nine basis points to 2.05%

Commodities

  • West Texas Intermediate crude fell 3.5% to $96.36 a barrel

  • Gold futures rose 1% to $1,734.60 an ounce

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