Stocks kicked off the week with gains after suffering their worst September in two decades as Treasury yields halted a seemingly endless surge, with weak US manufacturing data soothing concern about the Federal Reserve overtightening monetary policy.
(Bloomberg) — Stocks kicked off the week with gains after suffering their worst September in two decades as Treasury yields halted a seemingly endless surge, with weak US manufacturing data soothing concern about the Federal Reserve overtightening monetary policy.
In a sign of exhaustion of the recent selling, over 95% of the S&P 500 firms rose. Aside from being oversold from a technical perspective, extreme pessimism and low fund positioning also fueled a rebound that followed the gauge’s third-worst performance during the first nine months of a year since 1931. One notable outlier in Monday’s rally was electric-vehicle maker Tesla Inc., which plunged after disappointing deliveries.
Treasuries surged across the curve, with the 10-year yield down more than 20 basis points to about 3.6%. The rate recently topped 4%, climbing for nine straight weeks — the longest streak since 1994. The dollar fell, yet the latest MLIV Pulse survey showed the greenback is expected to hit new highs over the next month.
“The market is oversold, and sentiment is extremely negative, so a bounce…even a sharp one…could happen at any time,” wrote Matt Maley, chief market strategist at Miller Tabak + Co. “However, we see lower-lows before the ultimate bottom is reached for this bear market…as the stock market has not fully priced-in a recession.”
In fact, a gauge of US manufacturing stumbled in September to a more than two-year low, moving closer to outright stagnation as orders contracted for the third time in four months. The Institute for Supply Management’s gauge of factory activity dropped nearly 2 points to 50.9, the lowest since May 2020.
The Fed should consider stopping its tightening campaign after one more rate hike in November, according to Ed Yardeni, who coined terms like “Fed Model” and “bond vigilantes.” The stress in financial markets from big rate increases, a surging dollar and quantitative tightening has reached the point that officials should make financial stability the top priority, he added.
Despite the rebound in stocks and bonds, markets are bracing for more turbulence as a crucial reading on the still-tight US labor market is set to give traders a chance to reassess the Fed’s commitment to its aggressive path of rate hikes. Friday’s release of September job figures looms as a test of the central bank’s plan to rein in inflation by tightening policy further and unwinding its mammoth balance sheet.
Brazilian assets soared after President Jair Bolsonaro secured his way to a runoff election against Luiz Inacio Lula da Silva as investors cheered on the incumbent’s better-than-expected showing and bet his leftist challenger will be forced to moderate his stances in the second stretch of the race. The real was the best-performing among the world’s major currencies Monday.
Read: A $1 Trillion Burden Looms for World Borrowers Refinancing Debt
Key events this week:
- Eurozone PPI, Tuesday
- US factory orders, durable goods, Tuesday
- Fed’s John Williams, Lorie Logan, Loretta Mester, Mary Daly speak at events, Tuesday
- Eurozone services PMIs, Wednesday
- OPEC+ meeting begins, Wednesday
- Fed’s Raphael Bostic speaks, Wednesday
- Eurozone retail sales, Thursday
- US initial jobless claims, Thursday
- Fed’s Charles Evans, Lisa Cook, Loretta Mester speak at events, Thursday
- US unemployment, wholesale inventories, nonfarm payrolls, Friday
- BOE Deputy Governor Dave Ramsden speaks at event, Friday
- Fed’s John Williams speaks at event, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 2% as of 11:05 a.m. New York time
- The Nasdaq 100 rose 1.5%
- The Dow Jones Industrial Average rose 2.1%
- The Stoxx Europe 600 rose 0.7%
- The MSCI World index rose 1.5%
Currencies
- The Bloomberg Dollar Spot Index fell 0.4%
- The euro rose 0.2% to $0.9821
- The British pound rose 1.1% to $1.1294
- The Japanese yen rose 0.2% to 144.43 per dollar
Cryptocurrencies
- Bitcoin rose 0.9% to $19,408.94
- Ether rose 1.3% to $1,319.8
Bonds
- The yield on 10-year Treasuries declined 23 basis points to 3.60%
- Germany’s 10-year yield declined 19 basis points to 1.92%
- Britain’s 10-year yield declined 16 basis points to 3.93%
Commodities
- West Texas Intermediate crude rose 3.8% to $82.50 a barrel
- Gold futures rose 1.6% to $1,698 an ounce
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