Image source: Bankrate
A new month often brings new opportunities for businesses, and October started well with positive news for the stock market.
Despite growing concerns about the financial health of European banking giant Credit Suisse and weak economic data, the stock market rallied early in the fourth quarter.
Stocks
The Dow jumped to 765 points (2.7%), with the biggest gain last seen in mid-July.
Meanwhile, the Nasdaq and the S&P 500 gained 2.3% and 2.6%, respectively.
The third quarter and stocks ended on the last Friday of September, with stocks reaching a low milestone.
However, all 30 Dow stocks but one closed higher on Monday, a sign of market volatility.
Johnson & Johnson (JNJ) was the only title that didn’t reach the same height as the others.
Investor concerns
Persistent inflation continues to worry investors amid aggressive rate hikes by the US Federal Reserve.
Many fear that attempts to rein in price increases could push the economy into recession.
During 2022, stocks fell dramatically.
The CNN Business Fear & Greed Index, CNN’s way of measuring stock market movements, continues to show extreme levels of fear.
However, Monday’s market rally could signal that perverse bad news is good news.
Meanwhile, fears of escalating tensions at Credit Suisse (CS) could prompt the Fed to ease aggressive rate hikes.
Bond market investors are relying on the stress.
Treasury bonds and inflation
Benchmark 10-year government bond yields have fallen in recent days.
Although it rose briefly above 4% last week, it fell to 3.66% on Monday.
Inflation also remains a problem.
However, if the Fed and other central banks are concerned that a troubled European bank could lead to another financial contagion, now is not the time to raise interest rates by an historic amount.
Last week, traders estimated there was a more than 70% chance that the Fed would raise interest rates by three-quarters of a percentage point for the fourth consecutive session at the November 2 stock market meetings.
Today, the probability of a rate hike of this magnitude has fallen to 50%, with the probability of a more modest hike increasing by half a point.
The latest US manufacturing data could also prompt the Fed to reconsider how it should raise interest rates.
Economic progress
The economic nonprofit, the Institute for Supply Management, reported that the influential manufacturing index fell in August.
The index also fell below Wall Street forecasts.
Both can be seen as a sign that Fed rate hikes to slow the economy and reduce inflation are having the desired effect.
Jim Baird, chief investment officer of Plante Moran Financial Advisors, released a report on Monday stating:
“The economy is slowing – a reality that is increasingly apparent in the manufacturing sector.”
“The good news is that there are welcome signs that prices are stabilizing.”
The price of oil and other stocks
A hike in oil prices on Monday stimulated energy supplies, but also brought bad news to consumers.
Chevron (CVX) was the highest share in the Dow, while the energy sector was the best in the S&P 500.
Oil stocks rose after reports suggested that the OPEC+ blockade on oil producers is considering a cut in production.
The cut should mitigate the recent steep drop in crude oil prices.
Investors will also be relieved that the British pound, which has recently fallen to record lows against the US dollar, has recovered after the new UK government abandoned plans to cut taxes on wealthier Brits.
However, a stronger pound could add to fears of higher bond yields and higher borrowing costs in the UK.
Meanwhile, Tesla (TSLA) was among the stocks that did not participate in Monday’s rally.
The company’s stock dropped nearly 9%, putting it among the worst performers in the S&P 500.
Disappointing delivery and production figures for the third quarter were also reported over the weekend.
In contrast, Tesla’s competitor, GM (GM), rebounded after posting positive sales in the third quarter.
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