Wall Street Rebounds As Yields Slip, Focus On Fed Path

Wall Street Rebounds As Yields Slip, Focus On Fed Path

By Carolina Mandl

(Reuters) – U.S. stock indexes climbed on Wednesday following a recent selloff as bond yields eased, while investors await more clarity in the Federal Reserve’s monetary policy tightening plans.

The technology-heavy Nasdaq led gains among the main indexes, looking to snap a seven-session losing streak. Shares in Amazon.com Inc were up 2.0%.

U.S. stocks have sold off sharply since mid-August after hawkish comments from Fed Chair Jerome Powell were compounded by signs of an economic slowdown in Europe and China and aggressive steps by major central banks to tame inflation.

Data signaling strength in the U.S. economy has prompted traders to bet on a 75-basis-point interest rate hike by the Fed later this month. Fed fund futures implied investors were pricing in a more than 78% chance of such a move.

The 10-year Treasury yield slipped from three-month highs hit earlier in the session, boosting shares of rate-sensitive stocks such as Tesla Inc and Microsoft Corp.

“The bond markets behaving a little bit better today which is giving the stock market a little bit of a better feeling, but the big worries are still what the Fed is going to do on Sep 21. So we’re seeing a back and forth tug-of-war each day” said Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management Company.

Stocks’ performance also ignored hawkish comments by Federal Reserve earlier on Wednesday. Cleveland Federal Reserve Bank President Loretta Mester said the high cost of U.S. rental accommodation has not yet fully filtered through to inflation measures, suggesting inflation may still rise further.

Meanwhile, Richmond Fed President Thomas Barkin said the U.S. central bank must lift interest rates to a level that restrains economic activity and keep them there until policymakers are “convinced” that inflation is subsiding, while Federal Reserve Vice Chair Lael Brainard added the monetary policy will need to be restrictive “for some time.”

The main focus will be on Powell’s speech on Thursday and U.S. consumer price data next week for clues on the path of monetary policy.

The Fed’s “Beige Book”, a periodic snapshot of the health of the U.S. economy, indicated that price pressures are expected to persist at least through the end of the year.

By 2:20PM ET, the Dow Jones Industrial Average rose 383.62 points, or 1.23%, to 31,528.92, the S&P 500 gained 57.8 points, or 1.48%, to 3,965.99 and the Nasdaq Composite added 188.05 points, or 1.63%, to 11,732.96.

Ten of the 11 major S&P sectors were trading higher, led by a 2.7% jump in utilities, reflecting the defensive positioning by investors due to economic uncertainties.

The energy index fell 1.2% as oil prices tumbled almost 4% on demand worries related to looming recession risks. Brent crude fell below $90 a barrel.

Nio Inc reversed earlier losses and was last up 1.8% after the Chinese electric vehicle maker reported a bigger second-quarter adjusted net loss but revenue topped expectations.

Coupa Software Inc jumped 15.3% after the payment management software firm beat second-quarter estimates for revenue and profit.

Advancing issues outnumbered declining ones on the NYSE by a 2.73-to-1 ratio; on Nasdaq, a 2.15-to-1 ratio favored advancers.

The S&P 500 posted 6 new 52-week highs and 16 new lows; the Nasdaq Composite recorded 13 new highs and 213 new lows.

(Reporting by Sruthi Shankar and Ankika Biswas in Bengaluru; Editing by Anil D’Silva, Maju Samuel, Shounak Dasgupta, and Aurora Ellis)