Thanks to a weaker dollar and falling government bond yields, US stocks are trading higher since the start of October. US equities finished higher in Tuesday trading, adding to Monday’s big rally which saw the S&P post its third-best start to an October since 1930. US equity markets are following up yesterday’s more than 2% with another 2% rally today. Yesterday the move lower in yields, and hopes that the Fed could be on the precipice of throttling down its aggressive policy stance kick started the rally.
Dow 30 index soared 2.8% higher, S&P 500 closed the day 3.06% higher while Nasdaq Composite ended the day 3.34% higher than the previous day’s closing.
On Monday, the S&P 500 and Nasdaq Composite had jumped 2.59% and 2.27 percent respectively, while the Dow 30 was up by over 765 points. Are the bulls making a comeback remains to be seen. Until the macro indicators show a sustained recovery in the days ahead, the picture may not be clear.
Meanwhile, Bridgewater Associates founder Ray Dalio has changed his views and no longer believes that “cash is trash” and that the short-term interest rate is “today about appropriate.” Back in September, his view was, “I estimate that a rise in rates from where they are to about 4.5 percent will produce about a 20 percent negative impact on equity prices.
Gains in the US stock market are also the result of a slowdown in the increase in Treasury yields. Additionally, allaying concerns that the Federal Reserve may tighten monetary policy excessively were weak US manufacturing figures.
The relief rally in stocks comes on the premise that the Fed may be less aggressive in its approach to dealing with inflation. After a 3% rate hike started to have an impact on the economy, investors believe that weaker-than-anticipated US manufacturing statistics will reinforce a dovish stance at the Federal Reserve.
Also Read: October begins on a positive note as Dow 30 and S&P 500 post big gains
The Fed Funds Rate is currently expected to reach below 4.5% by March. After the Reserve Bank of Australia hiked rates by half as much as anticipated, there is growing speculation that the disruptive wave of monetary tightening throughout the world is coming to a stop.
Despite the recovery in risk assets, traders will have an opportunity to reevaluate the Fed’s commitment to its aggressive pace of rate hikes as markets brace for more volatility following a vital reading on the still-tight US job market. Many strategists are of the opinion that after one more rate hike in November, the Fed should think about ending its tightening campaign.
Also Read: Ray Dalio changes mind, says he no longer thinks ‘Cash Is Trash’
