U.S. stocks rally for second day ahead of U.S. midterms
U.S. shares rose in a broad-based rally that swept up small caps as well as blue-chip stocks, ahead of midterm elections and inflation data later this week. The dollar fell with Treasuries.
The S&P 500 closed near session highs, with all but three of the 11 industry groups advancing. The tech-heavy Nasdaq 100 also caught bids, while the Dow Jones Industrial Average outperformed, rising as much as 1.5 per cent with health-care names topping the leaderboard. The Russell 2000 rallied, reversing losses in afternoon trading.
Stocks gained for a second day ahead of U.S. midterms. Morgan Stanley’s Michael Wilson said polls pointing to Republicans winning at least one chamber of Congress provide a potential catalyst for lower bond yields and higher equity prices.
“Has the stock market been voting early?” said Ed Yardeni, founder of his namesake research firm, referring to the S&P 500 bounce back from an October low. “Tomorrow’s midterm elections may further boost stock prices in coming months if history is a guide. Our soft-landing economic outlook, if it pans out (60 per cent subjective odds), may be another wind at the stock market’s back.”
Optimism, for the moment, is outweighing concerns over the Federal Reserve’s resolute campaign against price surges, signs of stress in U.S. corporate performance and China’s announcement it will “unswervingly” adhere to current COVID Zero policy.
Meanwhile, Facebook parent Meta Platforms Inc. rallied on plans to cut jobs. Tesla Inc. was the biggest drag on the S&P 500 as the stock continued to sell off in the wake of Chief Executive Officer Elon Musk’s purchase of Twitter Inc. Apple Inc. bounced back from earlier losses triggered by a report saying it expected to produce at least three million fewer iPhone 14 handsets than originally anticipated this year.
Lyft Inc. fell in postmarket trading after the ride-hailing giant reported weaker-than-expected rider growth, overshadowing better profits from higher fares.
Stocks rose on Friday after data showed strong hiring and wage increases along with higher unemployment. That offered a mixed picture for Fed officials debating how long to extend their campaign to curb elevated inflation.
Swaps markets are leaning toward a 50 basis-point Fed rate increase in December, after a fourth consecutive jumbo hike to a target range of 3.75 per cent to 4 per cent at last week’s meeting. Rates are expected to peak slightly above 5 per cent around mid-2023.
The latest U.S. inflation reading due Thursday will be closely watched after the core consumer price index rose 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.
“Since we might not know the answer to what the makeup of Congress will be this week, Thursday’s CPI number will be very important once again,” Matt Maley, chief market strategist at Miller Tabak + Co., said in a note. “Even if we get a better-than-expected CPI number later this week, the odds that it will only create a very short-term bounce are high. Before long, the stock market should roll-over once again.”
In the corporate debt market, Oracle Corp.’s long-awaited acquisition financing is leading 15 U.S. high-grade issuers looking to get ahead of consumer price index data on Thursday and a bond market holiday on Friday.
Meanwhile, Chinese stocks listed in the U.S. fell Monday after health authorities repeated their strict adherence to the country’s COVID Zero policies. The Nasdaq Golden Dragon China Index slid more than 2 per cent, halting a four-day rally.
Key events this week:
- Euro-zone retail sales, Tuesday
- U.S. midterm elections, Tuesday
- EIA oil inventory report, Wednesday
- China aggregate financing, PPI, CPI, money supply, new yuan loans, Wednesday
- U.S. wholesale inventories, MBA mortgage applications, Wednesday
- Fed officials John Williams, Tom Barkin speak at events, Wednesday
- U.S. CPI, US initial jobless claims, Thursday
- Fed officials Lorie Logan, Esther George, Loretta Mester speak at events, Thursday
- U.S. University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 1 per cent as of 4 p.m. New York time
- The Nasdaq 100 rose 1.1 per cent
- The Dow Jones Industrial Average rose 1.3 per cent
- The MSCI World index rose 1.1 per cent
Currencies
- The Bloomberg Dollar Spot Index fell 0.4 per cent
- The euro rose 0.6 per cent to US$1.0021
- The British pound rose 1.2 per cent to US$1.1514
- The Japanese yen was little changed at 146.60 per dollar
Cryptocurrencies
- Bitcoin fell 1.6 per cent to US$20,794.56
- Ether fell 0.2 per cent to US$1,600.58
Bonds
- The yield on 10-year Treasuries advanced six basis points to 4.22 per cent
- Germany’s 10-year yield advanced five basis points to 2.34 per cent
- Britain’s 10-year yield advanced 10 basis points to 3.64 per cent
Commodities
- West Texas Intermediate crude fell 0.7 per cent to US$91.99 a barrel
- Gold futures were little changed
