US stocks rose on Tuesday, recovering most of Monday’s sell-off, as friction between supply and demand pushed energy prices to multi-year highs.
The Dow Jones Industrial Average rose 1.3% and the S&P 500 rose 1.5%, numbers that would more than offset Monday’s losses. The technology-heavy Nasdaq composite index jumped 1.7%, a day after falling more than 2%.
The volatile state of the stock market over the past month is both the result of typical seasonal volatility (September and October tend to see more massive sell-offs than other months), but also somewhat inevitable. Supported by a Federal Reserve which has conducted a very accommodating monetary policy, equity investors have experienced an uninterrupted rally since last March, with the S&P 500 nearly doubling.
The recent wave of volatility was both inevitable and relatively modest, said Michael Gayed, portfolio manager and author of the Lead-Lag Report newsletter. Including Tuesday’s gains, the S&P is down less than 5% from its high in early September. “If anything, this is long overdue,” he said.
Investors have several concerns: inflation, the continued effect of Covid-19 on the economy and when the Fed will begin to ease monetary levers. Lately, they have also had to worry about whether the US government will default on its debt as well as supply chain grunts and skyrocketing commodity prices, which are bringing the inflation problem back to nervous investors. .
“The stock markets today are more worried about inflation, the possibility that we then see higher rates and how that undermines the very high levels they have traded at,” said Rob Carnell. , research manager. for Asia-Pacific at ING.
What is important to watch now, Mr Gayed said, is the bond market. The yield on the 10-year US Treasury bill is basically the bond market’s reading on the direction of inflation. Its recent rise shook investors who had relied on the Fed’s assessment that high inflation was transient.
“The markets could get very manic if the bond market says ‘we were wrong about inflation’,” he said.
The yield on the benchmark 10-year US Treasury bond rose to 1.526% on Tuesday from 1.481% on Monday. Yields move in the opposite direction to prices.
Tech stocks are particularly sensitive to changes in bond yields, which affect the values investors place on distant future earnings. Higher bond yields were the main driver behind the sell-off in tech stocks.
These falls took an early hiatus on Tuesday. Facebook shares rose 2.1%, a day after its social media and messaging platforms crashed. Facebook whistleblower Frances Haugen is scheduled to testify before Congress on Tuesday.
Microsoft rose 2.3%, Amazon gained 2.1%, and Apple also added 2.1%.
Meanwhile, soaring energy prices threaten to weigh more on businesses as earnings prospects darken. West Texas Intermediate, the US oil benchmark, rose 1.7% to $ 78.94 per barrel, after hitting its highest level since 2014.
Natural gas prices have skyrocketed amid concerns about a shortage of inventory as winter approaches. US gas futures rose 8.5% to $ 6.25 per million UK thermal units.
In economic news, data showed the US trade deficit widened more than expected in August. The trade balance posted a deficit of $ 73.3 billion in August. Economists expected a more modest increase from the previous month.
Activity in the US service sector edged up in September, according to the latest reading from the Institute for Supply Management. The group’s activity index rose to 61.9 from 61.7 in August, amid strong demand and despite widespread supply chain problems and labor shortages.
In Asia, stock markets followed Monday’s losses on Wall Street. In Tokyo, the Nikkei 225 fell 2.2%, with SoftBank Group,
the technological investment center which is one of the main constituents of the index, losing 3.8%.
Concerns over Chinese real estate companies, fueled in recent weeks by tensions at China Evergrande Group,
were revived by the little rival Fantasia Holdings Group,
who said Monday night that he had failed to repay some maturing dollar bonds. Fantasia’s stock was suspended, while the Lippo Select HK & Mainland Property index fell by more than 3%.
The pan-continental Stoxx Europe 600 index rose 1.2%, led by banks and tech and media companies.
In the highly speculative crypto market, bitcoin crossed the $ 50,000 mark for the first time in a month. It recently rose 2.8% to $ 50,667, according to CoinDesk.
Corrections and amplifications
Fantasia Holdings Group said Monday evening that it had failed to repay some maturing dollar bonds. An earlier version of this article incorrectly named the company as Fantasia Group Holdings. (Corrected October 5.)
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