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CNN Business
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Stocks have started off October with more celebration than hype for investors. Markets rallied to start the fourth quarter despite rising data about the financial health of European giant Credit Suisse and weak economic data.
The Dow rose nearly 900 points, or 3.1%, in afternoon trading. It was on track for its biggest gain since November 2020. The Nasdaq and S&P 500 rose 2.7% and 3%, respectively. Stocks ended September (and the third quarter) with a bang on Friday.
In a sign of how volatile the market is, all but one of the 30 Dow stocks were higher by midday Monday — all after finishing lower Friday. (Johnson & Johnson ( JNJ ) was Monday’s lone laggard.) Investors are increasingly worried about inflation and how the Federal Reserve’s increased rate hikes could eventually lead to a recession.
Stocks are still down significantly this year. And the CNN Business Fear & Greed Index, which measures seven indicators of investor sentiment, is at the extreme fear level. But Monday’s market rally may have been a twisted “bad news is good news” rally.
Fears about rising stress on Credit Suisse ( CS ) could cause the Fed to slow its pace of rate hikes. Bond market investors seem to be playing that too. The yield on the 10-year U.S. Treasury note, which briefly rose to 4 percent last week, slipped in recent days and fell again to 3.66 percent on Monday.
Of course, inflation is still a concern. But if the Fed and other central banks also have to fear how a troubled European Bank could lead to further monetary tightening, then this may not be the best time to keep rates at historic levels.
Just over a week ago, traders were pricing in more than a 70% chance the Fed would raise interest rates by three-quarters of a percentage point for the fourth straight time at its November 2nd meeting. Now that the probability of a very modest half-point increase is growing, the probability of a large rate increase drops to about 50%.
The latest manufacturing data in the US may give the Fed a reason to rethink how much to raise interest rates.
The Institute for Supply Management, a nonprofit economic association, reported that its influential manufacturing index fell from August, below Wall Street’s forecast. This could be a sign that the Fed’s rate hikes are having the desired effect of slowing the economy and reducing inflation.
“The economy is slowing down — an increasingly common reality in the manufacturing sector. The good news is that there are welcome signs of stabilization in prices,” Jim Baird, chief investment officer at Plant Moran Financial Advisors, said in a report Monday.
A rise in oil prices was bad news for consumers, but also boosted energy stocks on Monday.
Chevron (CVX) was the top Dow stock, and the energy sector was the best performer in the S&P 500. Oil stocks have gained sharply following reports suggesting that petroleum producers are considering trying and reversing the OPEC+ bloc. Recent big slide in crude prices.
The British pound, which has recently hit new lows against the US dollar, may have taken comfort from investors after the new British government abandoned controversial plans to cut taxes for wealthy Britons.
A stronger pound will offset concerns about rising bond yields and rising credit costs in the UK.
In corporate news, Tesla (TSLA) was one of the few stocks that did not participate in Monday’s rally. Shares of Elon Musk’s electric car giant fell more than 7%, making the company the best performer in the S&P 500, after reporting disappointing third-quarter supply and production numbers over the weekend.
Meanwhile, Tesla rival GM ( GM ) rallied after reporting stronger-than-expected third-quarter sales.
