Stocks on Wall Street rose slightly on Tuesday as hopes grew that the Federal Reserve was done raising interest rates for now, but investors remained cautious as the Middle East conflict escalated.
The Dow Jones Industrial Average (^DJI) closed up around 0.4%, while the S&P 500 (^GSPC) gained 0.5%. The tech-heavy Nasdaq Composite (^IXIC) also gained about 0.6% after stock indexes reversed losses to close higher on Monday.
While stocks rose, Treasury yields continued to fall, with the 10-year Treasury note (^TNX) yield falling 16 basis points to trade near 4.63%, reflecting a broader sell-off in bonds.
The gains came after dovish comments from two Fed officials who signaled that the recent rise in bond yields could lead to the central bank’s tightening of credit conditions. Some analysts believe this could give policymakers a reason to call for an end to interest rate hikes this cycle.
Most recently, Atlanta Fed President Raphael Bostic said Tuesday he believes current interest rates are high enough to bring inflation back to the Fed’s 2 percent target.
Read more: What the Fed’s pause on rate hikes means for bank accounts, CDs, loans and credit cards
However, the IMF has warned that monetary policy must remain tight in most countries as central banks are “not quite there yet” in bringing stubborn inflation down to target.
Pressure on stocks was eased somewhat by Treasury yields falling as trading reopened after the holiday close on Tuesday. The 10-year Treasury yield (^TNX) has surpassed its 16-year peak, even as investors keep an eye on clashes between the militant Islamist group Hamas and Israel, which has vowed to lay siege to the Gaza Strip.
In another sign of easing worries, oil prices fell after rising more than 4% as investors eyed possible supply disruptions due to the Middle East conflict. Crude oil futures (CL=F) and Brent crude oil futures (BZ=F) both lost nearly 1%, trading just below $86 and above $87, respectively.
In individual stocks, shares of PepsiCo (PEP) rose nearly 2% after the maker of Pepsi sodas and Frito-Lay snacks beat Wall Street estimates for third-quarter profit and raised its full-year profit forecast.
AStocks close higher
Stocks closed the day in the green but off their highs earlier in the session, with the tech-heavy Nasdaq Composite (^IXIC) leading the day’s gains, up about 0.6%. The benchmark S&P 500 (^GSPC) rose about 0.5%, followed by the Dow Jones Industrial Average (^DJI), which gained about 0.4%.
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Oil prices are settling slightly lower
Oil prices calmed on Tuesday after surging the previous day on investor fears over the latest conflict in Israel.
West Texas Intermediate crude oil (CL=F) fell 0.64%, or $0.64, to close at $85.82 a barrel. Brent International (BZ=F) futures fell 0.66% to close at $87.56 as supply concerns eased.
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Real estate trade groups are calling on the Fed to halt interest rate hikes
Housing problems continue to grow as the Federal Reserve’s mantra of raising interest rates over the longer term threatens the stability of the sector.
As Dani Romero of Yahoo Finance reports:
The largest real estate trade groups are calling on the Federal Reserve to curb its interest rate efforts to prevent further volatility in the housing market.
In a letter to Fed Chairman Jerome Powell this week, the Mortgage Bankers Association (MBA), the National Association of Realtors (NAR) and the National Association of Home Builders (NAHB) called on the Fed to declare that it will not raise rates further and that it will hold off on selling additional mortgage-backed securities until the real estate financing market stabilizes.
The move marks the first time the groups have addressed the central bank directly since their rate hike campaign began in March 2022, and provides the latest sign of how “ongoing market uncertainty” surrounding the Fed’s interest rate path is weighing on the housing market – the groups said say – could have an impact on the overall economy.
“This has exacerbated housing affordability and caused additional disruption to a housing market already struggling to adapt to a dramatic decline in both mortgage originations and home sales volumes. These market challenges occur amid a historic shortage of affordable housing,” the groups wrote.
“Further rate hikes… pose broader risks to economic growth and increase the likelihood and severity of a recession.”
A Fed spokesman did not comment on the letter.
Read more here.
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Investors are increasingly betting on a Fed pause in November
Rising bond yields could mean the Federal Reserve won’t have to raise interest rates at its November meeting.
Over the past week, several Fed officials have described the rise in bond yields as being roughly “tantamount” to a rate hike, as San Francisco Fed President Mary Daly put it last Thursday.
The news has investors betting heavily on a Fed pause in November. As of Thursday afternoon, markets are pricing in about an 8% chance that the Fed will raise interest rates in November. Last week that probability was 28.2%, while a month ago it was 43.6%.
But some on Wall Street believe Thursday’s inflation data could shake things up.
“Policymakers may consider this additional tightening of financial conditions barring further rate hikes,” Michael Feroli, JPMorgan’s chief U.S. economist, wrote of the Oct. 6 rate hike toward a holding pattern at the next meeting.
“However, a stronger-than-expected inflation report next week could change that trade-off for them and they could be forced to do more.”
Economists polled by Bloomberg expect headline inflation to fall to 3.6% in September after prices rose 3.7% in August.
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PepsiCo, Block, Beyond Meat: Stock trends in afternoon trading
Here are some of the stocks topping Yahoo Finance’s Trend Ticker page in afternoon trading on Tuesday:
PepsiCo (PEP): Shares rose 2% in afternoon trading after the company beat Wall Street estimates for the third quarter. Sales rose in all divisions except Africa and the Middle East, defying widespread fears that the Ozempic boom would dent sales.
Block (SQ): The technology company rose more than 4.5% after Bank of America analyst Jason Kupferberg maintained his “buy” rating, saying the stock’s recent decline was “unwarranted” and did not reflect potential upside.
Sunrun (RUN): Shares rose more than 11% as solar stocks rebounded from recent lows amid France’s push toward renewable energy. The Invesco Solar ETF (TAN) also rose 5.5%, its biggest intraday gain since May.
Akero Therapeutics (AKRO): Shares plunged nearly 65% after the biotechnology company reported mixed results for its initial trial of one of its leading drugs to treat fatty liver disease.
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Stocks Boost Gains Amid Selloff in Yields
U.S. stocks added to gains posted earlier in the session, with the tech-heavy Nasdaq Composite (^IXIC) rising 1.2% while the benchmark S&P 500 (^GSPC) rose 1.1%, followed by the Dow Jones Industrial Average (^DJI) up 0.8%
Treasury yields continued to fall, with the 10-year Treasury note falling 16 basis points to trade near 4.63%.
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Hollywood writers overwhelmingly approved a new three-year agreement with studios, officially ending a strike that had lasted nearly 150 days before an agreement was reached in late September.
Ninety-nine percent of Writers Guild of America (WGA) members voted to ratify the contract with 8,435 “yes” votes and just 90 “no” votes, or 1% of all members, the union said late Monday. The terms of the new agreement run from September 25, 2023 to May 1, 2026.
“Through solidarity and determination, we have ratified a treaty with significant gains and protections for writers across all areas of our shared membership,” WGA West President Meredith Stiehm said in a statement. “Together we were able to achieve what many thought was impossible just six months ago.”
The guild managed to meet many of their demands, including stricter regulations around the use of artificial intelligence, minimum staffing requirements, viewer-dependent streaming bonuses, more data transparency, higher health and pension contribution rates, an increase in streaming residual payments, etc.
The guild was also able to achieve a wage increase of 5% this year, followed by an increase of 4% in 2024 and 3.5% in 2025.
SAG-AFTRA — the union that represents some 160,000 actors, announcers, recording artists and other media professionals around the world — remains firmly on the picket lines, although the guild is currently in negotiations with studios.
Read more here.
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Rising returns have not yet been overcome
Treasury yields fell on Tuesday, retreating from 16-year highs that had worried markets last week.
But Liz Young, head of investment strategy at SoFi, told Yahoo Finance Live that the market’s recent “pain trading” may not be over yet.
“I don’t think bonds are completely out of the woods yet,” Young said. “We haven’t seen a lot of weak economic data either. … At this point, there has been no good reason for yields to decline and remain low.”
Young stresses that yields are falling ahead of the latest inflation data expected on Thursday. Last month’s consumer price index report showed that prices rose 3.7% in August compared to a year earlier, with the increase driven mainly by rising energy prices. While economists polled by Bloomberg expect inflation to ease to a 3.6% rise in September, Young is “not particularly optimistic” with energy prices set to rise for much of September.
Broadly speaking, higher inflation could cause the Fed to raise interest rates again. A rising key interest rate was a key driver of returns in this interest rate hike cycle.
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The global economy is “lagging ahead” as the IMF cuts GDP forecast for 2024
The International Monetary Fund (IMF) released its latest global economic outlook on Tuesday as IMF chief economist Pierre-Olivier Gourinchas said the global economy still faces uncertainties, particularly after the recent conflict in Israel.
“The global economy is limping forward, not sprinting,” Gourinchas said at a news conference in Morocco. He added that the IMF was “monitoring the situation.” [in Israel] tight,” but said it was “too early” to assess the impact on the global economy, although the conflict would likely continue to cause oil prices to rise in the short term.
“We have seen this in previous crises and previous conflicts. And of course this reflects the potential risk that there could be disruptions to oil production or transportation in the region,” he said.
The IMF left its global GDP growth forecast for this year unchanged at 3.0%, citing the “remarkable strength” of the U.S. economy despite recent sluggish data from China and the euro zone. The organization raised its U.S. growth forecasts by 0.3 percentage points compared to the last July update to 2.1% for this year.
Still, the IMF cut its global GDP forecast for 2024 to 2.9%, compared with its July target of 3.0%, and warned that overall global growth will remain low.
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Stocks rise slightly, yields fall
U.S. stocks opened slightly higher on Tuesday, with the Dow Jones Industrial Average (^DJI) rising 0.3%, while the S&P 500 (^GSPC) and the tech-heavy Nasdaq Composite (^IXIC) rose about 0.2% and . increased by 0.1%. Meanwhile, Treasury yields fell by the most since March, with the 10-year Treasury note falling 11 basis points to trade near 4.68%.
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