US stocks rallied amid a revival in risk sentiment with Treasury yields easing and the dollar falling as Americans vote in midterm elections.
(Bloomberg) — US stocks rallied amid a revival in risk sentiment with Treasury yields easing and the dollar falling as Americans vote in midterm elections.
The S&P 500 extended gains into a third day.
The tech-heavy Nasdaq 100 and the blue-chip Dow Industrial Average outperformed, rising more than 1%. The yield on two-year Treasuries, more sensitive to Federal Reserve policy changes, shed 5 basis points, while dollar fell against most of its major counterparts.
A history of robust performance following midterm results has helped buoy optimism about the outlook for equity markets.
While polls suggest Republicans could make gains, thereby placing a check on Democratic policies, there are multiple scenarios. The best outcome for Treasuries could be a Republican control of both the House of Representatives and Senate, while the dollar could find support should Democrats keep both chambers.
Read more on elections:
Elections Latest: Polls Open With Senate Control Up for Grabs
Deeply Divided America Votes Amid Inflation Fears, Culture Wars
Here Are Key Races to Watch Hour by Hour as Midterm Voting Ends
Still, for many the biggest headwind for markets is the Fed’s monetary tightening with Thursday’s consumer-price-index data the next event risk coming on the heels of core consumer prices rising more than forecast to a 40-year high in September.
Even if prices begin to moderate, the CPI is far above the Fed’s comfort zone.
Going forward, though, there may be a silver lining in gridlock for policy makers, according to Art Hogan, chief market strategist at B.
Riley Wealth.
“Divided government, particularly leading into a presidential election, will most likely create a standstill where very little gets done,” Hogan wrote. “That’s probably a good thing for the Fed because various stimuli have not made their work easier.”
Treasuries rallied across the board Tuesday, with the benchmark 10-year rate dropping as much as 7 basis points.
Meanwhile, traders shaved bets on rate hikes, with swaps markets still leaning toward a 50 basis-point Fed rate increase in December. More notable moves were further out, with the peak reaching just above 5% in the first half of 2023.
Nvidia Corp.
climbed as it began producing a processor for China. Take-Two Interactive Software Inc. fell after reducing its forecast for net bookings.
Europe’s Stoxx 600 rallied, after a weak open. Chinese equities halted a rally as traders considered a jump in virus infections and official comments defending Covid Zero.
Key events this week:
- US midterm elections, Tuesday
- EIA oil inventory report, Wednesday
- China aggregate financing, PPI, CPI, money supply, new yuan loans, Wednesday
- US wholesale inventories, MBA mortgage applications, Wednesday
- Fed officials John Williams, Tom Barkin speak at events, Wednesday
- US CPI, US initial jobless claims, Thursday
- Fed officials Lorie Logan, Esther George, Loretta Mester speak at events, Thursday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.9% as of 11:10 a.m.
New York time
- The Nasdaq 100 rose 1.2%
- The Dow Jones Industrial Average rose 1.2%
- The Stoxx Europe 600 rose 0.7%
- The MSCI World index rose 1.1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.5%
- The euro rose 0.5% to $1.0073
- The British pound rose 0.4% to $1.1565
- The Japanese yen rose 0.9% to 145.36 per dollar
Cryptocurrencies
- Bitcoin fell 3.1% to $20,048.55
- Ether fell 3.3% to $1,523.81
Bonds
- The yield on 10-year Treasuries declined six basis points to 4.15%
- Germany’s 10-year yield declined seven basis points to 2.27%
- Britain’s 10-year yield declined seven basis points to 3.57%
Commodities
- West Texas Intermediate crude fell 0.4% to $91.46 a barrel
- Gold futures rose 2.2% to $1,717.10 an ounce
–With assistance from Jan-Patrick Barnert, Haidi Lun, Brett Miller, Srinivasan Sivabalan and Emily Graffeo.
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