Tuesday saw a little increase in Wall Street stocks as investors continued to exercise caution as the Middle East war intensified, despite mounting optimism that the Federal Reserve would soon stop raising interest rates.
Approximately 0.4% of the Dow Jones Industrial Average (\DJI) and 0.5% of the S&P 500 (\GSPC) had closing gains. The tech-heavy Nasdaq Composite (^IXIC) gained about 0.6% as well on Monday after the stock indices recovered from their losses to end the day higher.
Treasury yields decreased in tandem with the rise in stocks; the yield on the 10-year (^TNX) dropped 16 basis points to trade close to 4.63% as a result of a larger bond sell-off.
The advances followed two Fed members’ dovish remarks, which suggested that the recent increase in bond yields may cause the tightening of credit conditions the central bank is seeking. Some experts think that could provide policymakers with justification to call off rate increases for this cycle.
Raphael Bostic, the president of the Atlanta Fed, was the most recent. He stated on Tuesday that he thought the current interest rates were high enough to bring inflation back to the Fed’s 2% target.
However, the IMF has cautioned that most regions need to maintain strict monetary policy because central banks are “not quite there” in terms of getting persistent inflation down to target.
Treasury yields decreased as trade resumed on Tuesday after being closed for the holiday, relieving some of the pressure on stocks. While investors watched the fighting between Israel, which has promised to lay siege to the Gaza Strip, and the Islamist terrorist group Hamas, the yield on the 10-year Treasury (^TNX) fell from its 16-year high.
As investors watched possible supply disruptions from the Middle East conflict, oil prices plummeted, another indication that concerns were abating. Earlier, they had increased by more than 4%. Both Brent crude futures (BZ=F) and crude oil futures (CL=F) saw an almost 1% decline, closing at just under $87 and just below $86, respectively.
PepsiCo (PEP) shares increased by about 2% in individual stocks after the company, which produces Frito Lay snacks and Pepsi soda, exceeded Wall Street projections for third-quarter profit and increased its outlook for annual earnings.
The housing crisis is getting worse because the Federal Reserve’s higher-for-longer interest rate policy is endangering the sector’s stability.
According to Dani Romero of Yahoo Finance:
To stop further instability in the housing market, the largest real estate trade associations are urging the Federal Reserve to scale back its efforts to adjust interest rates.
The Mortgage Bankers Association (MBA), the National Association of Realtors (NAR), and the National Association of Home Builders (NAHB) urged the Federal Reserve (Fed) to clarify that it is not considering additional rate hikes and that it will wait to sell any more mortgage-backed securities until the housing finance market stabilises in a letter to Fed Chair Jerome Powell this week.
The action is the first time the groups have taken direct aim at the central bank since its rate-hiking campaign started in March 2022 and offers the most recent evidence of how the housing market is being severely impacted by “ongoing market uncertainty” surrounding the Fed’s rate course, which the groups claim could have an impact on the overall economy.
“This has made housing more affordable and caused more turbulence in the real estate market, which is already having difficulty adjusting to a sharp decline in the volume of home sales and mortgage originations. The groups said, “There is a historic scarcity of affordable housing at the same time as these market issues.
“Further rate increases…pose broader risks to economic growth, heightening the likelihood and magnitude of a recession.”
The Federal Reserve may decide not to raise interest rates at its meeting in November as a result of rising bond yields.
Several Fed officials have stated during the past week that the increase in bond yields is roughly “equivalent” to a rate hike, as San Francisco Fed President Mary Daly stated last Thursday.
Investor bets overwhelmingly favour a Fed pause in November as a result of the news. Markets are putting in an around 8% possibility that the Fed will raise interest rates in November as of Thursday afternoon. That probability was 28.2% last week, compared to 43.6% a month earlier.
However, some on Wall Street believe this might be upset by Thursday’s inflation report.
Regarding the rate increase, JPMorgan chief US economist Michael Feroli said on October 6 that “policymakers might take into account this additional tightening in financial conditions in the absence of further hikes.” “At this point, we believe the odds are stacked in favour of a hold at the upcoming meeting.
“However, a firmer-than-expected inflation report next week might change this trade-off for them and they might feel compelled to do more.”
According to a Bloomberg survey of economists, headline inflation will slightly decline to 3.6% in September following a 3.7% increase in prices in August.
Tuesday afternoon trading had the following stocks at the top of Yahoo Finance’s hot tickers page:
PepsiCo (PEP): After the business’s third-quarter earnings beat Wall Street estimates, shares of the company increased by 2% in afternoon trading. Contrary to general worries that the Ozempic frenzy would hurt sales, sales increased in every business segment with the exception of Africa and the Middle East.
Block (SQ): Following the announcement that Bank of America analyst Jason Kupferberg had maintained his Buy rating and that the stock’s recent decline was “unjustified” and did not indicate future growth, the tech business surged more than 4.5%.
Sunrun (RUN): Following France’s push for renewable energy, solar stocks recovered from recent lows, with shares rising more than 11%. Also up 5.5% was the Invesco Solar ETF (TAN).
Hollywood writers’ strike, which lasted almost 150 days before a compromise was reached in late September, came to an effective conclusion when they unanimously approved a new three-year agreement with studios.
With 8,435 “yes” votes and only 90 “no” votes, or 1% of the total, the Writers Guild of America (WGA) members voted 99% in favour of ratifying the contract, the union said late on Monday. The new agreement’s terms will take effect on September 25, 2023, and end on May 1, 2026.
WGA West President Meredith Stiehm said in a statement, “We have ratified a contract with meaningful gains and protections for writers in every sector of our combined membership through solidarity and determination.” “Together, we were able to achieve what, just six months ago, many said was impossible.”
Numerous demands made by the guild, such as tighter rules governing the use of AI, minimum staffing requirements, viewership-based streaming bonuses, increased data transparency, higher rates of health and pension contributions, an increase in streaming residuals, and more, were successfully met.
Additionally, the guild was able to raise wages by 5% this year. In 2024, wages will rise by 4%, and in 2025, they will climb by 3.5%.
Though the guild is currently in talks with studios, SAG-AFTRA, the organisation that represents around 160,000 actors, announcers, recording artists, and other media professionals worldwide, is still firmly entrenched on the picket lines.
Tuesday saw a decline in Treasury rates, which had been rattling the market for the preceding week due to 16-year highs.
The latest “pain trade” in the market, according to Liz Young, head of investment strategy at SoFi, may not be done, she said on Yahoo Finance Live.
“I don’t think bonds are completely out of the woods yet,” Young stated. Additionally, there hasn’t been a lot of poor economic statistics. There hasn’t been a compelling cause for yields to decline and remain below at this time.”
Young points out that rates are declining in advance of Thursday’s anticipated release of the most recent inflation data. According to the Consumer Price Index report from last month, prices increased 3.7% in August over the same month the previous year, mostly due to higher energy costs. Young is “not super optimistic” because energy prices will be rising for a large portion of September, even if Bloomberg’s survey of experts predicts inflation will drop to a 3.6% gain in September.
In general, increased inflation may lead to another rate hike by the Fed. A major factor influencing yields during this round of hikes has been an increasing fed funds rate.
The chief economist at the International Monetary Fund (IMF), Pierre-Olivier Gourinchas, stated in the organization’s most recent World Economic Outlook on Tuesday that there are still uncertainties in the global economy, particularly in the wake of the most recent violence in Israel.
“At a press conference in Morocco, Gourinchas stated that the global economy is at a crawl rather than a sprint.” Although the conflict will probably continue to drive up oil prices in the near future, he noted that the IMF was “monitoring the situation [in Israel] closely” and that it was “too early” to determine the impact on the world economy.
“We’ve observed that in past conflicts and crises. Naturally, this highlights the possibility that there may be an interruption to the region’s oil transportation or production,” he stated.
This year, the IMF maintained its 3.0% prediction for global GDP growth, pointing to the “remarkable strength” of the US economy in spite of recent weak statistics from China and the euro zone. The group increased its estimates for this year’s US growth to 2.1% by 0.3 percentage points from its July update.
Nevertheless, the IMF revised down its prediction for global GDP in July from 3.0% to 2.9% in 2024 and issued a warning that overall growth would remain weak.