Dovish Fed officials boost Wall Street as bond yields retreat

The buying continues as the optimism over Fed remarks regarding no more rate hikes got a boost for second day when the Atlanta Fed prez reiterated Tuesday that the central bank does not need to raise interest rates further, and sees no recession ahead. Also helping the cause was the 10-year yield coming off a 16-year high thus also helping to boost stocks. As today’s expert put it, “Everybody has one eye on the Middle East and one eye on bond yields.”  Right now the Fed headlines are knocking all others off the front page. Minneapolis Fed prez also boosted the no more hikes scenario and a soft landing for recession. 

The odds for no rate change for November and December are now 86% and 73%.  Producer and consumer price as well and Fed minutes are coming later this week, as well as the start of Q3 reporting. Volume was again below average at 9.9 billion.   (Note: Something strange happened at exactly 1 pm when all three indexes took a sudden and instant plunge losing half of their gains for the day, and staying that way until close. No explanation given. So even though it was a good day, the morning was much better.)

Dovish Fed officials boost Wall Street as bond yields retreat

By Sinéad Carew and Shashwat Chauhan

Tue October 10, 2023 4:48 PM

DJ: 33,604.65  +197.07        NAS: 13,484.24  +52.90        S&P: 4,335.66  +27.16     10/9

DJ: 33,739.30  +134.65        NAS: 13,562.84  +78.61        S&P: 4,358.24  +22.58     10/10

Oct 10 (Reuters) - Wall Street indexes closed higher on Tuesday, to notch their third straight day of gains, after dovish comments from U.S. Federal Reserve officials pushed Treasury yields lower as investors cautiously monitored developments in the Middle East.  Following comments from top Fed officials on Monday, Atlanta Fed President Raphael Bostic said the U.S. central bank does not need to raise interest rates any further, and that he sees no recession ahead.  The 10-year Treasury yield came off its 16-year peak on Tuesday, and was tracking for its steepest single-day drop since August, as trading resumed in the U.S. bond market which had been closed for a holiday on Monday.  Israeli air strikes attacked Gaza on Tuesday, razing entire districts in the densely populated and impoverished enclave, filling morgues with Palestinians, including women and children, as it took "revenge" for a deadly weekend of Hamas attacks that triggered some of the worst blood-letting in 75 years.

"Everybody has one eye on the Middle East conflict and one eye on what's happening with bond yields. The decline in bond yields is the key driver today," said John Praveen, managing director & co-chief investment officer at Paleo Leon.  While the Fed's dovish comments were helping stocks on Tuesday and investors were being sanguine about the Middle East, Praveen said that view could change if for example the fighting spread to other countries in the region.  Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, also attributed the stock market's gains on Tuesday to declining bond yields even as he said "the level of risk in the world has gone up considerably."  "The action yesterday and today, given what's happened in Israel, has really surprised me. But the flight to safety has made Treasury yields fall enough to push up equities," Tuz said.

The Dow Jones Industrial Average (.DJI) rose 134.65 points, or 0.4%, to 33,739.3, the S&P 500 (.SPX) gained 22.58 points, or 0.52%, to 4,358.24 and the Nasdaq Composite (.IXIC) added 78.61 points, or 0.58%, to 13,562.84.  Ten of the S&P 500's 11 major sectors advanced with utilities (.SPLRCU) leading gains, while the biggest laggard was energy (.SPNY) down 0.02% after its 3.5% rally on Monday. 

Late on Tuesday, Minneapolis Federal Reserve Bank President Neel Kashkari said he believes the U.S. economy is on track for a soft landing in which inflation falls back to the Fed's 2% goal but the unemployment rate does not rise sharply.  But while Kashkari said recent gains in Treasury yields could reduce the need for more rate hikes he cautioned that if yields are higher due to changing expectations about Fed policy, it might "need to follow through" to maintain those yields.  Fed Governor Christopher Waller reiterated the U.S. central bank's determination to reduce inflation to its 2% target.  Traders put the chance of interest rates remaining unchanged in November and December at around 86% and 73%, respectively, according to CME's FedWatch tool.  Later in the week, investor focus will turn to inflation data, including September producer and consumer prices as well as the Fed's September meeting minutes. Friday is when third-quarter earnings season kicks off in earnest. 

Among individual stocks PepsiCo (PEP.O) climbed 1.9% after the soft drinks company raised its annual profit forecast for a third time this year. Rival Coca-Cola (KO.N) gained 2.2%.  Truist Financial (TFC.N) shares rallied 6.6% after a report that the bank is in talks to sell its insurance brokerage unit to private equity firm Stone Point for about $10 billion.  Rivian Automotive (RIVN.O) added 4.6% after UBS upgraded the EV maker's stock to "buy" from "neutral". 

Advancing issues outnumbered declining ones on the NYSE by a 3.08-to-1 ratio; on Nasdaq, a 2.12-to-1 ratio favored advancers.  The S&P 500 posted 11 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 51 new highs and 178 new lows. 

On U.S. exchanges 9.91 billion shares changed hands compared with the 10.70 billion moving average from the last 20 sessions.