The S&P 500 index (.SPX) had its largest one-day gain in two years on Tuesday as lower U.S. economic data as well as Australia’s relatively small interest rate move fueled expectations for a more gradual Federal Reserve tightening.
Although there is still a healthy labour market, the number of job postings in the United States decreased by the highest in almost 2-1/2 years in August, an indication that the Fed’s efforts to slow the economy by raising interest rates were having the desired effect. View More
The Reserve Bank of Australia earlier stunned the markets by raising interest rates by 25 basis points less than anticipated. After six rate increases in as many months during a tightening cycle that other central banks are also experiencing, its cash rate reached a nine-year high.
According to Anthony Saglimbene, chief strategist for markets at Michigan-based Ameriprise Financial, following escalating rate hikes this year, the RBA is the first significant central bank to acknowledge that it is time to slow down.
There is optimism, he said, that the Federal Reserve would make a similar statement somewhere in the fourth quarter. Slow down the rate of increase rather than stopping completely. That is the underlying cause of the market’s current surge.
However, Fed Governor Philip Jefferson stated that the inflation issue is the most important one the US central bank is currently dealing with and that a solution “may take some time.” Mary Daly, president of the San Francisco Fed, stated that the bank must continue raising interest rates.
After the release of the jobs report and the RBA’s unexpected move, rates on the standard 10-year Treasury fell for the second day in a row, which helped rate-sensitive tech stocks climb. When their cost of capital increases, the value of tech or other growth stocks declines.
Since May 2020, the S&P 500 experienced its largest single-day increase. Since April 2020, the Dow Jones Industrial Average (.DJI) & S&P 500 (.SPX) experienced their largest two-day gains.
When the earnings season starts in two weeks, the effects of higher rates will probably be seen in corporate results, according to Dennis Dick, market structure analyst and founder at Triple D Trading Inc.
He predicted that things would get worse in this area. It won’t be solid earnings season this time around. If one of the major guns issues a warning, the rally can finish pretty abruptly. This is only a relief rather than the beginning of a new bull market.
Twitter Inc. (TWTR.N) shares soared 22.24% on Tuesday after billionaire Elon Musk recommended continuing with his initial deal of $54.20 to take the social media company private, according to two persons familiar with the situation. The S&P 500’s biggest percentage gainer was Twitter.
Before the news, Tesla shares were up about 6%. They soon reduced gains and ended the day up 2.90%.
The mega-cap titans drove the surge, with Microsoft Corp (MSFT.O) and Amazon.com Inc (AMZN.O) both rising 4.50% and 3.38%, respectively. Alphabet Inc., the parent company of Google, gained 3.04% while Apple Inc. (AAPL.O) increased by 2.56%.
Over 3% gains were made by banks like Morgan Stanley, Citigroup, and Goldman Sachs.
With only six equities finishing lower than the S&P 500 index, the surge was broadly based.
The S&P 500 (.SPX) rose 112.5 points, or 3.06%, to 3,790.93 while the Nasdaq Composite (.IXIC) increased 360.97 points, or 3.34%, to 11,176.41. The Dow Jones Industrial Average (.DJI) increased 825.43 points, or 2.8%, to 30,316.32.
12.51 billion shares were traded on U.S. exchanges, exceeding the 11.63 billion norms for a long session over the previous 20 trading days.
The S&P 500 (.SPX) experienced its worst weekly performance in nearly two years last week, capping its worst monthly result in September since March 2020. This was followed by the stock market’s recovery on Monday.
After announcing that it manufactured 7,363 machines in the third quarter, 67% higher than the second quarter, and kept its full-year target of 25,000, Rivian Automotive Inc (RIVN.O) saw a 13.8% increase.
On the NYSE, advancers outweighed decliners by a ratio of 6.80 to 1; on the Nasdaq, advancers were in the lead by a ratio of 3.70 to 1.
The Nasdaq Composite registered 53 new highs among 73 new lows, while the S&P 500 recorded two new 52-week peaks and one new low.