Image source: Bankrate
A new month often opens up new doors and opportunities, and October got off to a good start with positive news.
Despite growing concerns about the financial health of European banking giant Credit Suisse and weak economic data, the stock market has recovered to kick off the fourth quarter.
The Dow jumped to 765 points (2.7%), the biggest gain since mid-July.
Meanwhile, the Nasdaq and the S&P 500 gained 2.3% and 2.6%, respectively.
The third quarter and stocks ended last Friday in September, with stocks reaching a low milestone.
On Monday, however, all but one of the Dow’s 30 stocks finished higher, a sign of market volatility.
Johnson & Johnson (JNJ) was the only stock not to reach the same heights as the others.
Ongoing inflation is worrying investors over the Federal Reserve’s aggressive rate hikes.
Many fear that attempts to contain rising prices could potentially send the economy into recession.
In the course of 2022, inventories dropped dramatically.
The CNN Business Fear & Greed Index, CNN’s way of measuring stock market movements, continues to show Extreme Fear levels.
However, Monday’s market rally could signal a perverse “bad news is good news” rally.
Meanwhile, fears of increasing stress at Credit Suisse (CS) could prompt the Fed to ease aggressive rate hikes.
Bond market investors are betting on stress.
Read also: Federal Reserve raises interest for the fifth time in 2022
Treasury bonds and inflation
Over the past few days, the yield on the benchmark 10-year US Treasury bond has fallen.
Where it rose briefly above 4% last week, it fell to 3.66% on Monday.
Inflation also remains a concern.
However, if the Fed and other central banks fear that a troubled European bank could lead to more financial contagion, then now is not the time to raise interest rates by historic amounts.
Last week, traders were counting on a more than 70% chance that the Fed would raise interest rates by three-quarters of a percentage point for the fourth consecutive time at its November 2 meeting.
Today, the probability of a rate hike of this magnitude has fallen to 50%, with the probability of a more modest hike increasing by half a point.
Recent US manufacturing data may also prompt the Fed to reconsider how it should raise interest rates.
The economic nonprofit, the Institute for Supply Management, reported that the influential manufacturing index fell in August.
The index also fell below Wall Street forecasts.
Both can be seen as a sign that Fed rate hikes to slow the economy and reduce inflation are having the desired effect.
On Monday, Jim Baird, chief investment officer of Plante Moran Financial Advisors, released a report stating:
“The economy is slowing – a reality that is increasingly apparent in the manufacturing sector.”
“The good news is that there are welcome signs that prices are stabilizing.”
Read also: After US stock market hits the worst day since 2020, the market goes steady
The price of oil and other stocks
On Monday, a rise in oil prices boosted energy supplies but also brought bad news for consumers.
Chevron (CVX) was the Dow’s highest share, while the energy sector was the best in the S&P 500.
Oil inventories received a hike after reports suggested the OPEC+ oil producer blockade is considering a cut in production.
The cut would seek to mitigate the recent steep drop in crude oil prices.
Investors will also be relieved that the British pound, which recently fell to record lows against the US dollar, has recovered after the new UK government abandoned plans to cut taxes on wealthier Brits.
However, a stronger pound could increase fears of rising bond yields and rising credit costs in the UK.
Meanwhile, Tesla (TSLA) was among the stocks that did not participate in Monday’s rally.
The company’s shares fell nearly 9%, making it one of the worst performers in the S&P 500.
Over the weekend, it also reported disappointing delivery and production numbers in the third quarter.
On the other hand, Tesla’s rival GM (GM) rallied after reporting positive sales in the third quarter.