Stocks End Sharply Higher on Hopes for a Less Aggressive Fed

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Tuesday closed up +3.06%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +2.80%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +3.14%.

Stocks on Tuesday rallied sharply for a second day, with the S&P 500, Dow Jones Industrials, and Nasdaq 100 posting 1-1/2 week highs.  Global stock and bond markets rallied Tuesday after the Reserve Bank of Australia raised interest rates less than expected, which bolstered hopes that aggressive interest rate hikes by the world’s central banks may be nearing the end.  As a result, the 10-year T-note yield fell to a 1-1/2 week low today at 3.558%.

Stock indexes extended their gains Tuesday after economic news showed Aug JOLTS job openings fell more than expected to a 14-month low, which bolstered hopes the Fed may be close to ending aggressive rate hikes. 

A rally in travel and leisure stocks Tuesday lifted the overall market amid growing optimism that the Fed may not have to be as aggressive with its tightening.  Also, E-commerce stocks surged Tuesday on M&A activity after South Korea’s Naver agreed to Poshmark in a deal worth $1.2 billion.  In addition, Twitter surged 22% after Tesla CEO Musk said he plans to proceed with his proposal to buy Twitter for $54.20 a share.

U.S. Aug JOLTS job openings fell -1,186,000 to a 14-month low of 10.053 million, showing a weaker labor market than expectations of 11.088 million

Fed comments Tuesday were hawkish for monetary policy and bearish for stocks.  Fed Governor Jefferson said inflation was "elevated" and "restoring price stability may take some time and will likely entail a period of below-trend growth."  Also, San Francisco Fed President Daly said the Fed "must follow through on its commitments to bring inflation down, which does mean further rate hikes and holding those restrictive policies in place until we are truly done with bringing inflation back to target."

Australia’s central bank, the Reserve Bank of Australia (RBA), Tuesday raised its cash rate target by +25 bp to 2.60%, less than expectations of a +50 bp rate hike.

Today’s stock movers…

Travel and leisure stocks Tuesday rallied sharply on growing optimism the Fed may not have to be as aggressive with its tightening.  Royal Caribbean Cruises Ltd (RCL) and Norwegian Cruise line Holdings (NCLH) closed up more than +16%.  Also, Carnival (CCL) closed up more than +13%, and Caesar’s Entertainment (CZR) closed up more than +11%.  In addition, Wynn Resorts (WYNN) closed up more than +9%, and Las Vegas Sands (LVS), Delta Air Lines (DAL), and American Airlines Group (AAL) closed up more than +8%.

A decline in T-note yields Tuesday lifted technology stocks.  Atlassian Corp Plc closed up more than +8%, and ASML Holding NV (ASML) and Dexcom (DXCM) closed up more than +7%. Also, Align Technology (ALGN) closed up more than +6%, and Nvidia (NVDA), Broadcom (AVGO), Marvel Technology (MRVL), and NXP Semiconductors (NXPI) closed up more than +5%. 

E-commerce stocks rallied Tuesday on M&A activity after South Korea’s Naver agreed to Poshmark in a deal worth $1.2 billion.  As a result, stitch Fix (SFIX) and RealReal (REAL) closed up more than +16%.  Also, Poshmark (POSH) closed up more than +13%.  In addition, Wayfair (W) closed up by more than 9%, and Etsy (ETSY) and eBay (EBAY) closed up by more than +4%.

Twitter (TWTR) closed up by more than +22% Tuesday to lead gainers in the S&P 500 after Tesla CEO Musk said he plans to proceed with his proposal to buy Twitter for $54.20 a share.

Illumina (ILMN) closed up more than +9% Tuesday to lead gainers in the Nasdaq 100 after SVB upgraded the stock to outperform from market perform, with a price target of $270.

Amazon.com (AMZN) closed up more than +4% Tuesday after JPMorgan Chase said Amazon is the company’s favorite internet stock “by a wide margin,” saying it is positive about Amazon’s prospects over the remainder of the year. 

Welltower (WELL) closed down more than -1% Tuesday to lead losers in the S&P 500 after forecasting Q3 normalized FFO/share of $0.82-$0.87, the midpoint below the consensus of $0.85.  

Across the markets…

Dec 10-year T-notes (ZNZ22) on Tuesday closed up +9.5 ticks, and the 10-year T-note yield fell -1.4 bp to 3.625%.  T-notes Tuesday extended Monday’s rally up to a 1-1/2 week high, and the 10-year T-note yield fell to a 1-1/2 week low of 3.558%.  T-note prices rallied Tuesday on hopes that the world’s central banks are close to ending their aggressive rate hike campaigns.  Global bond yields sank after the Reserve Bank of Australia Tuesday raised its cash rate target by +25 bp to 2.60%, below expectations of a +50 bp rate hike.  The 10-year German bund yield fell to a 2-week low of 1.770%, and the 10-year UK gilt yield fell to a 1-week low of 3.740%.

T-note prices Tuesday fell back from their best levels on hawkish comments from Fed Governor Jefferson and San Francisco Fed President Daly.  Also, a sharp rally in stocks Tuesday curbed the safe-haven demand for T-notes.

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