scorecardresearch

October begins on a positive note as Dow 30 and S&P 500 post big gains

US stocks closed noticeably higher with S&P recording one of its finest sessions of the year.

October begins on a positive note as Dow 30 and S&P 500 post big gains
About 97% of the S&P 500's shares flashed green and the index had its strongest day since July.

US stock prices had their worst September in 20 years, but October got off to a strong start. As traders debated whether it would be realistic for central banks to alter their aggressive posture in order to prevent a hard landing, US stocks continued their recovery from severely oversold levels. From the start of October, the S&P 500 had its best two-day surge since April 2020. 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.

Short squeeze has indeed been a big factor behind the rebound in equities, but it’s not like traders are minimizing the potential impact of the recent economic reports on Fed thinking. That doesn’t mean any pivot would be imminent. Markets are still mostly betting on a 75 bps rate hike next month.

The US stock market gains come on the back of a slowing down in the rise of Treasury yields. Weak US manufacturing data also allayed concerns that the Federal Reserve might tighten monetary policy too much. About 97% of the S&P 500’s shares flashed green following the recent washout, and the index had its strongest day since July.

The Institute for Supply Management’s indicator of factory activity has fallen, raising concerns about a possible slowdown in the economy. While this is what Fed exactly wants – to slow down the economy and thereby tame inflation. If the economic activity is indeed slowing down, it is a piece of good news for the stock market investors. It means, the US Fed will not show urgency to hike rates aggressively thus not tightening the liquidity conditions in a hurry.

Fed officials have, however, cautioned that there is still work to be done by the central bank to reduce inflation and that the process to bring inflation under control will take time.

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. Although it is too soon to call for a Fed reversal, it appears that traders are growing more convinced that the slowdown in global growth is beginning to reduce price pressures based on recent activity on Treasury markets.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.