Besides stocks, lower rates also boost prices for everything from cryptocurrencies to gold, which can suddenly look a bit more attractive when bonds are paying less in income.
Stocks of high-growth companies and particularly risky or expensive investments have been the most affected by changes in rates. Bitcoin rallied Monday with the reprieve in yields, while technology stocks did the heaviest lifting to carry the S&P 500. Apple and Microsoft both rose more than 3 per cent.
Altogether, the S&P 500 climbed 92.81 points to close at 3,678.43. The Dow gained 765.38 to 29,490.89, and the Nasdaq rose 239.82 to 10,815.43.
Still, cross currents continue to course through markets, and analysts largely expect sharp swings in prices to continue.
Crude oil prices jumped Monday amid speculation big oil-producing countries could soon announce cuts to production. That adds upward pressure on inflation.
It also lifted shares of energy-producing companies to big gains. Exxon Mobil leaped 5.3 per cent, and Chevron climbed 5.6 per cent.
Monday’s rally came despite an 8.6 per cent drop for Tesla, one of the most influential stocks on Wall Street because of its massive market value. The maker of electric vehicles delivered fewer vehicles from July through September than investors expected.
More turbulence for markets could arrive on Friday, when the latest update on the US jobs market hits. Along with its reports on inflation, the US government’s jobs report has been one of the most highly anticipated pieces of data on Wall Street each month.
It will be the last jobs report before the Fed makes its next decision on interest rates, scheduled for November 2, and continued strength would give the central bank more leeway to keep hiking. Traders say the likeliest move is a fourth straight increase of a whopping three-quarters of a percentage point, triple the usual move.
For markets to make a meaningful move higher, many investors say they need to see a break in inflation that gets the Fed to ease off its aggressive path.
Such hopes for a Fed “pivot” by investors have repeatedly resurfaced this year, only to get shot down by further accelerations in inflation.
But with stresses building in financial markets as central banks around the world hike rates in concert, conditions have gotten “into the danger zone where ‘bad stuff’ happens,” according to Michael Wilson, equity strategist at Morgan Stanley.
That could get the Fed to blink at some point. The problem, Wilson says, is that another force weighing on markets could soon come to the forefront: weaker corporate profits.
A suite of challenges from higher interest rates to the surging value of the US dollar may be setting things up for “the freight train of the oncoming earnings recession,” he wrote in a report. Companies are getting ready now to report in upcoming weeks how much they earned during the summer, and analysts have been downgrading their expectations.
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
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