Wall Street stocks set to post strong gains for second straight session

US stocks rose more than 2% for the second straight session as weak economic data helped ease some concerns over Federal Reserve rate hikes.

The S&P 500 gained 2.6% in mid-afternoon New York, after closing up 2.6% on Monday. The tech-heavy Nasdaq Composite rose 2.9%.

If this holds, it would be the first time since March that the S&P 500 has recorded consecutive sessions each with a gain of more than 2%, and it would only be the fourth time this has happened since the nadir of the financial crisis. in March 2009, according to Financial Times analysis of Refinitiv data.

Elsewhere, the European regional Stoxx 600 closed up more than 3%.

The rally comes after three straight quarters of declines for the S&P 500 – the longest streak of quarterly losses since 2008 – as the Fed led the charge by aggressively raising interest rates to rein in stubbornly high inflation. Rising borrowing costs and fears that the central bank could induce a recession with tighter monetary policy weighed heavily on stock prices.

But with the S&P 500 down 21% this year, some analysts and investors are pointing to opportunities to buy stocks at low prices.

“We turn stocks tactically bullish for a [fourth-quarter] strong recovery,” analysts at Cantor Fitzgerald said this week. “We believe inflation is down sharply as we speak and will soon be recognized by the Fed,” they added.

Employment data from the Bureau of Labor Statistics also encouraged investors on Tuesday to believe that the Fed could slow its interest rate hikes. The number of job openings in the United States fell in August to 10.1 million, below economists’ expectations of 10.8 million and the previous figure of 11.2 million.

Markets on Tuesday priced forecasts for U.S. interest rates to hit just under 4.5% by March 2023, down from estimates of nearly 4.7% at the end of September. The Fed’s current target range is between 3 and 3.25%, after three consecutive interest rate increases of 0.75 percentage points.

A manufacturing index released on Monday showing activity in the U.S. manufacturing sector shrank at its fastest pace since May 2020 also helped, at least temporarily, ease fears about rate hikes.

But many analysts have warned that the rally may not be sustainable. “It’s not uncommon to see a rebound in a bear market,” said Mabrouk Chetouane, head of global market strategy at Natixis Investment Managers.

“We don’t have enough data to fuel the scenario of a central bank pivot,” he said, adding that upcoming U.S. unemployment and services activity data releases will provide additional clues.

“With sentiment towards equities already very weak, periodic rebounds are to be expected,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “But markets are likely to remain volatile in the near term, primarily driven by inflation and policy rate expectations.”

Haefele added that some of the selling pressure last week could come from the rebalancing of portfolios late in the quarter.

Government bond prices rose on Tuesday, following gains in the previous session, with the yield on the 10-year US Treasury slipping 0.02 percentage points to 3.63%. The two-year yield, which is more sensitive to changes in interest rate expectations, was slightly lower at 4.10%.

UK gilts rallied more strongly, with the 10-year yield falling 0.08 percentage point to 3.87%. The gilt market was plagued by volatility last week after Westminster’s proposed tax cuts and sweeping borrowing plans spooked investors and sparked a historic sell-off in long-term debt.

The selloff eased last Wednesday as the Bank of England stepped in to quell the turmoil, with sentiment improving further on Monday after Liz Truss’ government was forced to backtrack on planned tax cuts for high earners in the UK.

The pound advanced 1.2% on Tuesday to $1.14 against the dollar, returning to levels last seen before Chancellor Kwasi Kwarteng unveiled his “mini” budget 11 days ago.

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