By Lawrence Delevingne
BOSTON (Reuters) – U.S. stocks regained ground on Tuesday, while Treasury yields and Brent crude oil prices continued to climb, as investors adjusted their expectations for interest rate hikes following hawkish comments from the U.S. Federal Reserve.
The Nasdaq led Wall Street’s main indexes higher, rising around 1.75%, as investors bought the dip in technology stocks and snapped up bank shares, such as Wells Fargo & Co, which benefit from charging higher interest rates to borrowers.
The Dow Jones Industrial Average rose 258.84 points, or 0.75%, to 34,811.83, and the S&P 500 gained 47.16 points, or 1.06%, to 4,508.34.
Fed Chair Jerome Powell said on Monday the central bank could move “more aggressively” to raise rates to fight inflation, possibly hiking by more than 25 basis points at one or more meetings this year.
The market is pricing in a 72.2% probability that the Fed will hike the fed fund rate 50 basis points when policymakers meet in May, up from a probability of just over 50% on Monday.
At around 1745 GMT, the U.S. 10-year Treasury yield was at 2.377%, having hit its highest level since 2019. The 2-year note also ticked up, to yield 2.1683%, from 2.134%.
“The degree of difficulty for Jerome Powell’s Fed to stick a soft landing for the economy is about the same as Captain Sullenberger’s heroic emergency landing on the Hudson River,” said Aaron Clark, a portfolio manager at GW&K Investment Management in Boston, referring to the 2009 landing of a US Airways plane after its engines failed.
“The market remains in a tug of war between a policy error causing a recession and a resilient economy with a strong consumer and corporate sector,” Clark wrote in an email.
Stocks also rose in Europe. The STOXX 600 gained 0.85%, having climbed in recent sessions to reach a one-month high. London’s FTSE 100 gained nearly 0.5% .
The MSCI world equity index, which tracks shares in 50 countries, was up approximately 1% .
Matthias Scheiber, global head of multiasset portfolio management at Allspring Global Investments in London, said the pickup in stocks could be a case of investors buying the dip, but that growth stocks would struggle if the U.S. 10-year yield moves closer to 2.5%.
“We saw the sharp rise in yields yesterday and we see that continuing today on the long end, so that’s likely to put pressure on equities. … It will be hard for equities to have a positive performance.”
JPMorgan took a different view and said that 80% of its clients plan to increase equity exposure, which is a record high.
“With positioning light, sentiment weak and geopolitical risks likely to ease over time, we believe risks are skewed to the upside,” JPMorgan strategists wrote in a note to clients.
“We believe investors should add risk in areas that overshot on the downside such as innovation, tech, biotech, EM/China, and small caps. These segments are pricing in a severe global recession, which will not materialize, in our view.”
The conflict in Ukraine continued to weigh on sentiment. U.S. President Joe Biden issued one of his strongest warnings yet that Russia is considering using chemical weapons.
Oil prices initially retreated on Tuesday after surging the day before. But the price of Brent crude was most recently at $116.49, up 0.75% on the day. U.S. crude fell 0.04% to $112.07 per barrel.
Both the U.S. dollar index and euro were flat on Tuesday after losses on Monday.
Spot gold dropped 0.7% to $1,922.04 an ounce, pressured by the Fed chief’s hawkish approach to tackling inflation.
Cryptocurrency bitcoin was up about 3.7% at around $42,544, adding to gains since its intraday low of $34,324 on Feb. 24, when Russia invaded Ukraine.
(Reporting by Lawrence Delevingne in Boston and Elizabeth Howcroft in London; Editing by Jonathan Oatis, Matthew Lewis and Leslie Adler)