A new month often opens up new opportunities for businesses, and October got off to a good start with positive news.
Despite growing concerns about the financial health of European banking giant Credit Suisse and weak economic data, the stock market rebounded early in the fourth quarter.
The Dow jumped to 765 points (2.7%), the biggest gain since mid-July.
Meanwhile, the Nasdaq and the S&P 500 gained 2.3% and 2.6%, respectively.
The third quarter and stocks ended in September last Friday, with stocks reaching a low milestone.
On Monday, however, all but one of the Dow’s 30 stocks finished higher, a sign of market volatility.
Johnson & Johnson (JNJ) was the only stock not to reach the same heights as the others.
Ongoing inflation continues to worry investors over the Federal Reserve’s aggressive rate hikes.
Many fear that attempts to contain price increases could send the economy into recession.
In the course of 2022, inventories dropped dramatically.
The CNN Business Fear & Greed Index, CNN’s way of measuring stock market movements, continues to show Extreme Fear levels.
Monday’s market rally, however, could signal a perverse “bad news is good news” rally.
Meanwhile, fears of rising tensions at Credit Suisse (CS) could prompt the Fed to ease aggressive rate hikes.
Bond market investors rely on stress.
Treasury bonds and inflation
The benchmark 10-year Treasury yield has fallen in recent days.
Where it briefly rose above 4% last week, it fell to 3.66% on Monday.
Inflation also remains a problem.
However, if the Fed and other central banks are concerned that a troubled European bank could lead to another financial contagion, now is not the time to raise interest rates by a historic amount.
Last week, traders estimated there was a greater than 70% chance that the Fed would hike rates by three-quarters of a percentage point for the fourth consecutive session at its Nov. 2 meeting.
Today, the probability of a rate hike of this magnitude has fallen to 50%, with the probability of a more modest hike increasing by half a point.
The latest US manufacturing data could also prompt the Fed to reconsider how it should raise interest rates.
The economic nonprofit, the Institute for Supply Management, reported that the influential manufacturing index fell in August.
The index also fell below Wall Street forecasts.
Both can be seen as a sign that Fed rate hikes to slow the economy and reduce inflation are having the desired effect.
On Monday, Jim Baird, chief investment officer of Plante Moran Financial Advisors, released a report stating:
“The economy is slowing – a reality that is increasingly apparent in the manufacturing sector.”
“The good news is that there are welcome signs that prices are stabilizing.”
The price of oil and other stocks
On Monday, a rise in the price of oil boosted energy supplies, but it also brought bad news for consumers.
Chevron (CVX) was the highest share in the Dow, while the energy sector was the best in the S&P 500.
Oil stocks rose after reports suggested that the OPEC+ blockade on oil producers is considering a cut in production.
The cut should mitigate the recent steep drop in crude oil prices.
Investors will also be relieved that the British pound, which has recently fallen to record lows against the US dollar, has recovered after the new UK government abandoned plans to cut taxes on wealthier Brits.
However, a stronger pound could increase fears of rising bond yields and rising credit costs in the UK.
Meanwhile, Tesla (TSLA) was among the stocks that did not participate in Monday’s rally.
The company’s shares fell nearly 9%, making it one of the worst performers in the S&P 500.
Over the weekend, it also reported disappointing delivery and production figures in the third quarter.
On the other hand, Tesla’s rival GM (GM) recovered after posting positive sales in the third quarter.