Stocks Rally On Weak Economic Data, Good Earnings
U.S stocks rallied for a third straight day Tuesday on weak economic data that eased inflation fears and good earnings that eased some recession fears.
Wall Street is caught between two types of fears these days. On the one side is the fear of rising inflation and interest rates that reset the valuation button for every asset, including equities.
On the other side is the fear of an impending recession as rising inflation and interest rates take their toll on consumer and business spending, squeezing earnings and equity valuations.
Tuesday's trading session began with traders and investors focusing on earnings reports from General Motors and Halliburton, UPS, SAP, and Coca-Cola, which beat earnings estimates, easing fears that a weakening economy is cutting at corporate bottom lines.
Soon, the focus shifted to the release of the August home price index by the Federal Housing Agency. It showed an annual increase of 11.9%, below the market expectations of 12.6%, indicating that the hot property sector is beginning to cool off.
Then there was the release of the October Consumer Confidence Index by the Conference Board. It came at 102.5, down from 107.8 in September, and below the 107 markets expected, indicating that the consumer sector, the largest sector of the economy, is cooling off, too.
The cooling off of the housing and the consumer sectors is what the Federal Reserve expects to see as it tries to fight inflation with interest rate hikes.
That was good news for debt traders and investors, who returned to the market, sending bond prices higher and yields lower. For instance, at 3 pm, the benchmark 10-year Treasury bond was trading with a yield of 4.09%, down 3.26% from the previous day.
Lower bond yields sparked a rally in interest rate-sensitive sectors like homebuilders, consumer discretionaries, and technology, pushing major indexes higher.
Moreover, the lower yields put pressure on the U.S dollar, with the U.S Dollar Index (DXY) slipping 1.10 points or 0.98% to 110.89. It added momentum to the shares of large caps companies with significant exposure to overseas markets, like semiconductors.
A mix of lower yields and a weaker dollar bodes well for further gains on Wall Street, provided that earnings from big technology companies like Microsoft, Alphabet, Amazon, Meta Platforms, and Apple scheduled for release continue to beat the lowered expectations.
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