S&P 500 enjoys its biggest gain since July
Stocks soared on Wall Street after falling bond yields helped markets shake off a miserable September marred by fears that the Federal Reserve's aggressive interest rate hikes would hurtle the U.S. economy into a recession.
The S&P 500 rose 93 points, or 2.6%, on Monday to close at 3,678. The Dow jumped 765 points, or 2.7%, to 29,490, while the Nasdaq rose 2.3%.
"[T]here are so many moving macro pieces in the world that it's easy to get discombobulated. U.S. equity investors should focus on what's most important: yields, inflation and growth,"analyst Adam Crisafulli of Vital Knowledge said in a research note. "If Treasuries can rally for whatever reason (soft growth, soft inflation and/or some type of a Fed shift) it would act as an enormous tailwind for stocks."
Lowest level in nearly 2 years
September saw the S&P 500 tumble to its worst month since the coronavirus pandemic crashed global markets. It enters October at its lowest level since November 2020 and is down by more than a quarter since the start of the year.
The Fed has been at the forefront of the global campaign to slow economic growth and hurt job markets just enough to undercut inflation but not so much that it causes a recession. On Friday, the Fed's preferred measure of inflation showed it was worse last month than economists expected. That should keep the Fed on track to keep hiking rates and hold them at high levels a while, raising the risk of it going too far and causing a downturn.
The British pound strengthened and borrowing costs for the U.K. government fell after the new, embattled government of Prime Minister Liz Truss abandoned plans to cut income tax rates for top earners, part of a package of unfunded cuts that had set off turmoil in financial markets and sent the pound to record lows. In a dramatic about-face, Treasury chief Kwasi Kwarteng abandoned plans to scrap the top 45% rate of income tax paid on earnings above 150,000 pounds ($167,000) a year.
The stunning and swift rise of the U.S. dollar against other currencies, meanwhile, raises the risk of creating so much stress that something cracks somewhere in global markets.
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European energy concerns
Europe faces "unprecedented risks" to its natural gas supplies this winter after Russia cut off most pipeline shipments and could wind up competing with Asia for already scarce and expensive liquid gas that comes by ship, the IEA said.
Reports that major oil producers plan further production cuts were also exerting upward pressure on energy prices. Crude oil prices were sharply higher ahead of a meeting this week of OPEC+. The oil cartel is expected to announce production cuts.
U.S. benchmark crude oil gained $3.39 to $82.88 per barrel in electronic trading on the New York Mercantile Exchange. It lost $1.74 to $79.49 per barrel on Friday.
Brent crude oil, the standard for pricing international oil, rose $3.33 to $88.47 per barrel.
OPEC and allied oil-producing countries, including Russia, made a small trim in their supplies to the global economy a month ago, underlining their unhappiness as recession fears help drive down crude prices.
On Friday, the S&P 500 fell 1.5%, while the Dow Jones Industrial Average dropped 1.7% and the Nasdaq composite slid 1.5%. All three declined by nearly 3% last week as the Dow slipped into what's considered bear territory, down more than 20% for the year.