U.S. stocks extend rally, Treasury yields dip after solid earnings, economic data

It was another volatile day with the Dow up over 650 points in the morning, then falling to a +100 before noon, and a couple more ups and downs before rising in the final hour to close up 337 points. The other two followed much the same pattern for a second consecutive day of an impressive rally.  As the sentiment goes, “the market was a bit oversold leading into Monday.”  But the more dominant sentiment became “better than expected quarterly results” which has been the trend for years now, that and a nice jolt from positive industrial output.  But the best sentiment – “The belief that a recession is coming and the Fed is going to be raising rates is now baked into the market.” 

Now for some opinion: If that is true, and it’s a big if, then there shouldn’t be any more panic selling at every tiny hint of bad news. There is ample evidence that the rate cuts are working and that inflation peaked in March. It’s still terribly high and coming down very slowly but at least it’s not getting worse. September is historically a down month. It sure was this year. But, if the bad case scenario is indeed already priced in and inflation does keep coming down, then the market should keep rising. In fact, it will zoom if there is no recession. And the Fed presidents have been firm in their stance that the economy is resilient enough to roll with the punches and not plunge into recession. So far, the Fed hasn’t been wrong, though Wall Street has been frequently. So now may well be the time to buy, especially considering what I pointed out in July that NEVER in the history of the S&P has it lost in the first 2 quarters without breaking even again by year-end. Volume was a little above average at 11.7 billion. 

Tue  October 18, 2022  4:21 PM

U.S. stocks extend rally, Treasury yields dip after solid earnings, economic data

By Stephen Culp

DJ: 30,185.82  +550.99       NAS: 10,675.80  +354.41        S&P: 3,677.95  +94.88     10/17

DJ: 30,523.80  +337.98       NAS: 10,772.40  +96.60          S&P: 3,719.98  +42.03     10/18

NEW YORK, Oct 18 (Reuters) - Wall Street stocks closed higher and Treasury yields dipped on Tuesday as upbeat earnings and better-than-expected factory data stoked a risk-on rally.  Building on Monday's broad gains, the S&P 500 led the major U.S. stock indexes higher to end the session up nearly 1% or more, with sectors across the board advancing.  Meanwhile benchmark Treasury yields were last lower, having oscillated throughout the day.

"The market was a bit oversold leading into Monday, and people were worried of what was going to happen over the weekend. People walked into the week feeling a little better," said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Conn. "You're getting a combination of short covering and fear of missing out."

Better-than-expected quarterly results from Goldman Sachs Group Inc (GS.N), Johnson & Johnson (JNJ.N) and Lockheed Martin (LMT.N) set the tone, with robust industrial output data providing signs of economic strength even as central banks tighten monetary policy to tackle inflation.  The belief that "a recession is coming and the Fed is going to be raising interest rates, with the hope that maybe a pause is going to be coming something next year," is now baked into the market, Pavlik said. "Without all that weight, the market can rise higher after being sold off."

The Dow Jones Industrial Average (.DJI) rose 337.98 points, or 1.12%, to 30,523.8, the S&P 500 (.SPX) gained 42.04 points, or 1.14%, to 3,719.99 and the Nasdaq Composite (.IXIC) added 96.60 points, or 0.9%, to 10,772.40.

Monday's policy reversal from British finance minister Jeremy Hunt's continued to buoy investor sentiment.  European shares extended their policy U-turn rally - with an assist from the tech sector - to close modestly higher on the day.  The pan-European STOXX 600 index (.STOXX) rose 0.34% and MSCI's gauge of stocks across the globe (.MIWD00000PUS) gained 1.13%.  Emerging market stocks rose 1.50%. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed 1.55% higher, while Japan's Nikkei (.N225) rose 1.42%.

Treasury yields wavered throughout the session, but had edged lower by the closing bell.  The benchmark 10-year note yield was last at 3.9922%, from 4.015% late on Monday.  The 30-year bond last rose 1/32 in price to yield 4.0142%, from 4.015% late on Monday.  The British pound dipped after surging nearly 2% on Monday, which propped up the greenback against a basket of world currencies, but the dollar was last essentially flat, its gains held in check by risk-on investor sentiment.  The dollar index rose 0.02%, with the euro up 0.17% to $0.9855.  The Japanese yen weakened 0.12% versus the greenback at 149.22 per dollar, while sterling was last trading at $1.1327, down 0.23% on the day.

Crude prices dropped on fears of higher U.S. stockpiles and signs of waning global demand.  U.S. crude slid 3.09% to settle at $82.82 per barrel, while Brent settled at $90.03 per barrel, down 1.74% on the day.  The unchanged dollar helped support gold's nominal gain. Spot gold added 0.1% to $1,650.94 an ounce. 

No volume data in this report, but per the CBOE, 11.7 billion shares were traded.