Stocks rally as uncertainties keep Wall Street wobbly
NEW YORK U.S. stocks rallied Tuesday, as Treasury yields eased but Wall Street remains wobbly as investors await more clarity about where interest rates, inflation, and the economy are headed.
The S&P 500 climbed 39. 25 points, or 1%, to 4,160. 68 after reversing a morning loss of 1%. After reversing a morning loss of 1%, the Dow Jones Industrial Average rose 264. 36 points, or 0.8%, to 33,180. 14 after it also bounced between losses and gains throughout the day. The composite of Nasdaq gained 86 points, or 0.9%, to 12,175.23.
Gains were generated by Apple, Microsoft, and other technology stocks. They benefited from a drop in Treasury yields, with the 10-year yield falling back below 3%. Investors are more willing to pay higher stock prices, especially for companies that are growing rapidly, because of lower yields in recent years.
Stocks of energy producers also jumped as oil prices rose to roughly $120 per barrel, up more than 55% for the year so far. Exxon Mobil rose 4.6%, while ConocoPhillips climbed 4.5%.
Kohl’s rose 9.5% after the department-store chain announced that it is in advanced talks with Vitamin Shoppe owner Franchise Group to sell itself for $8 billion. Jam maker J.M. Smucker rose 5.7% following stronger earnings than analysts anticipated. Wall Street began the day pessimistic. Stocks initially fell after Target warned that it would have lower profit margins and slash prices to clear inventory. After Target announced changes it felt were necessary to keep up with changing customer behavior, the retail giant fell 2.3%. The pandemic has caused shoppers to spend more on food and travel than they did on home improvements.
Walmart was the first to fall 1.2% in the downdraft.
Worries were also stoked when the World Bank cut its forecast for economic growth for this year. It cited Russia’s war with Ukraine as well as the possibility of widespread food shortages. This raised concerns about the possible return of “stagflation,” which is a toxic mixture of high inflation and slow growth that has not been seen in more than 40 years.
Wall Street has been concerned about the Federal Reserve raising interest rates. This is despite concerns about the economy’s fragility. Although the central bank is working aggressively to curb the worst inflation in decades, it could cause economic collapse if it moves too fast or too slow.
The Fed is expected to raise its key short term interest rate by half of a percentage point at next week’s meeting. Investors expect a third increase in July, which would mark the second consecutive increase of twice the usual amount.
The Fed is not the only one to rein in the huge support that was given to the economy and financial market during the pandemic. Investors were surprised Tuesday when Australia’s central bank raised interest rates by half of a percentage point.
Markets face other challenges, even if central banks manage to slow down the economy enough to halt inflation, but not too much to cause a recession.
“Rising interest rates and slowing growth do not create a favorable environment for investors. Markets face other challenges, Gargi Chaudhuri of iShares Americas’ investment strategy, stated in a report. She stated that she believes the U.S. will not enter a recession.
Treasury yields have largely risen this year, with expectations for an aggressive Fed. They did moderate a little on Tuesday.
The yield on the 10-year Treasury fell back to 2. 98% was 3. 03% late Monday. The two-year yield, which closely tracks Fed action expectations, fell to 2. 72% from 2.73%.
Markets may remain unstable until more clarity is gained about inflation and the economy. Friday will bring the U.S. government’s latest reading on the consumer price inflation.
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