Wall Street rallies as pressure from the bond market eases
Wall Street rallied to its best day since June on Wednesday after pressure that’s built up on stocks from the bond market relaxed a bit.
The Standard & Poor’s 500 index climbed 1.1% to trim its loss for what’s been a dismal August so far. The Dow Jones industrial average rose 184 points, or 0.5%, and the Nasdaq composite jumped 1.6%.
Big Tech stocks and others that benefit from easier interest rates led the way. They got some relief as the 10-year Treasury yield eased further from its highest level since 2007 after a report suggested the U.S. economy may be cooling.
A 2.2% gain for Apple’s stock and 1.4% climb for Microsoft shares were two of the strongest forces pushing the S&P 500 upward.
Nvidia, another one of the market’s most influential stocks, rallied 3.2% ahead of its highly anticipated profit report.
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Expectations were immense after the chipmaker stunned Wall Street three months ago by predicting that it would make roughly $11 billion in revenue during the three months through July. That was nearly $4 billion more than analysts had been forecasting and would be a 64% leap from its numbers a year earlier.
The announcement set off a rush across Wall Street. Stocks of AI-related companies soared, and investors tried to count how many times a chief executive could mention “AI†in an earnings call. Nvidia’s stock has more than tripled this year, and it will need to meet the much higher expectations around it to justify its big move.
Nvidia and just a handful of other companies were behind the majority of the S&P 500’s gains earlier this year. Many of those “Magnificent Seven†stocks were benefiting from the AI frenzy as well.
They’ve been under more pressure recently, as yields crank higher in the bond market. When bonds are paying more in interest, investors feel less need to pay high prices for stocks and other investments that can swing sharply in price.
Americans increased their purchases at retailers last month in a sign that solid consumer spending is still powering a resilient U.S. economy.
Treasury yields eased Wednesday, taking off some of that pressure. The 10-year Treasury yield fell to 4.18% from 4.33% late Tuesday.
A preliminary reading of U.S. services and manufacturing businesses eased to a six-month low, sending yields down across the bond market. The measure of output from S&P Global Market Intelligence still indicated growth, but less as inflation and higher interest rates bite into activity.
“A near-stalling of business activity in August raises doubts over the strength of U.S. economic growth in the third quarter,†said Chris Williamson, chief business economist at S&P Global Market Intelligence.
For now, softer-than-expected data on the economy may be good for markets. That’s because a string of surprisingly strong reports recently has raised expectations for the Federal Reserve to keep interest rates higher for longer. The Fed has already hiked its main interest rate to the highest level since 2001 in hopes of grinding down high inflation.
High rates work by slowing the entire economy and hurting prices for investments, and they’ve helped inflation ease since it peaked above 9% last summer. But a still-solid job market and spending by U.S. households threaten to make it difficult for inflation to come down the last percentage point to the Fed’s target of 2%.
That’s why the main event of the week for markets could be a speech Friday by Fed Chair Jerome H. Powell. He will be speaking at a Jackson Hole, Wyo., event that’s been the setting for major policy announcements by the Fed in the past.
Despite more than a year of widespread warnings that a recession was near, America’s economy is, if anything, accelerating.
The hope among traders has been that the Fed has already hiked rates for the final time this cycle and that it will begin cutting rates early next year. But such hopes have been diminishing with each stronger-than-expected report on the economy that’s come in recently.
The two-year Treasury yield, which closely tracks expectations for the Fed, has also jumped recently, though it, like the 10-year yield, eased Wednesday. It fell to 4.94% from 5.05%.
On Wall Street, Toll Bros. rose 3.9% after the home builder reported stronger profit for the latest quarter than expected. It had earlier been struggling with the entire housing industry as high mortgage rates ground down activity.
Advance Auto Parts climbed 3.1% after it named a new CEO and reported stronger revenue for the spring than analysts expected. Its profit, though, fell short of forecasts.
Foot Locker tumbled 28.3% after reporting weaker profit for the latest quarter than expected. The company also paused its dividend and cut its financial forecasts for the full year, describing a “still-tough consumer backdrop.â€
Shares of companies that make products sold in Foot Locker stores were also weak. Nike fell 2.7%.
All told, the S&P 500 gained 48.46 points to 4,436.01. The Dow rose 184.15 points to 34,472.98, and the Nasdaq climbed 215.16 points to 13,721.03.
In markets abroad, stock indexes were modestly higher in Europe and mixed across Asia.
AP writers Yuri Kageyama and Matt Ott contributed to this report.
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