US stocks staged a surprise rally to kick off the fourth quarter on Monday, making gains following a miserable stretch that saw major indices plunge deeper into bear territory on mounting fears of a global recession.
The Dow Jones Industrial Average surged 765.38 points, or 2.7%. The tech-heavy Nasdaq index was up 239.82 points, or 2.3%, while the broad-based S&P 500 jumped 92.81 points, or 2.6%.
The rally occurred as investors digested weak data showing weak manufacturing activity in September, including a decline in new orders. The data likely stoked optimism in the markets that signs of a slowing economy will lead the Federal Reserve to dial down the pace of its interest rate hikes.
“There are some people that see value at these levels that are buying, but you also got some weak economic data earlier today,” Jake Dollarhide, CEO of Longbow Asset Management, told The Post. “That is tonic that the market needs, it needs to see inflation come down so the Fed will stop being so aggressive with raising interest rates.”
The Fed has enacted a series of sharp interest rate hikes this year – stoking fears among investors that the central bank’s hawkish stance would tip the US economy into a deep recession. Fed Chair Jerome Powell has indicated more hikes are likely until policymakers see sustained signs that inflation is easing.
“The economic data stream actually came in worse than expected. In a very counterintuitive fashion that likely represents good news for equity markets,” Art Hogan, chief market strategist at B. Riley Wealth in Boston, told Reuters.
“(While) good economic data, strong readings had been a catalyst for selling, this is the first time we’ve actually seen some negative news be a catalyst.”
Declines in 10-year and 2-year Treasury yields also relieved some pressure on stocks. The 10-year Treasury notes, which have a significant impact on mortgage rates, were trading at 3.668% after spiking above 4% last week.
Long-term mortgage rates hit a whopping 6.7%, further cooling demand in a US housing market that is already experiencing notable price declines in many markets. As The Post reported, home prices sank in August at their sharpest rate since the Great Recession as high mortgage rates pushed buyers to the sidelines.
Elsewhere, British leaders abandoned a planned tax cut for high earners on Monday. The announcement came days after the pound plummeted to an all-time low after top UK officials signaled plans to roll out unfunded tax hikes without any cuts in government spending.
All 11 major S&P 500 sectors were in positive territory, with major oil firms such as Exxon Mobil and Chevron and tech giants such as Apple leading the rally.
Meanwhile, Tesla was among the day’s big losers, falling 8.6% after revealing it sold fewer vehicles than expected in the third quarter.
With the Fed’s policy roadmap uncertain and inflation still lingering, Monday’s rally is likely to be short-lived, according to Dollarhide.
“Unfortunately, we’ve seen about 10 bear market rallies this year, where we’ve had a big up day or maybe three or four days in a row only for investors to get completely gut punched and lose it all in the next week or so.”
With Post wires