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Stocks: Dow Up 1.5K, S&P 500 +5.7% RBNZ Move, Job Data

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On Tuesday, stocks soared as Wall Street built on a strong rally from the previous session and bond yields continued to decline.

Adding 825.43 points, or 2.8%, to reach 30,316.32, the Dow Jones Industrial Average increased. Nearly 3.1% more was added to the S&P 500, which ended the day at 3,790.93, while the Nasdaq Composite rose 3.3% to 11,176.41.

The S&P 500 rose 5.7% for the week thanks to Tuesday’s gains, which also marked the biggest two-day gain since March 2020.

The market’s strong start to the month has provided a break from the rapid declines experienced in September and the previous quarter. The Dow gained about 765 points on Monday, marking its best day since June 24. The S&P 500 gained about 2.6%, which was the most in a single day since July 27, while the Nasdaq gained 2.3%.

Analysts believe the S&P 500 was looking oversold after dropping more than 9% in September and increasing its year-to-date decline to nearly 25% as of Friday’s close. Additionally, quarter-end rebalancing, which has since concluded, may have contributed to some of the selling pressure from the previous week.

The last two sessions have seen an improvement in sentiment as Treasury yields retreat from more than 10-year highs. On Tuesday, the yield on the 10-year Treasury was trading at about 3.63%, down from a peak of over 4% last week. The day’s low was when it fell below 3.6%.

The fact that shares of Credit Suisse ended the day 12% higher on Tuesday helped to improve sentiment as well. There were worries about the bank’s financial stability earlier in the week. According to the bank, it will release updates to its strategy along with its third-quarter financial results.

Yield on the 10 year U.S. Treasury and the S&P 500's performance between Oct.3 and 4, 2022

Stocks Advance Following Job Openings August Data

Following job openings data that indicated a weakening in the labor market, stocks continued to rise, which led some traders to speculate that the Fed may end its aggressive tightening campaign earlier than anticipated.

In August, there were more than a million fewer job openings than in July, which may be a sign that the enormous labor gap in the United States is starting to close.

According to a Bureau of Labor Statistics report released on Tuesday, there were a total of 10.05 million open positions for the month, a 10% decrease from the 11.17 million positions reported in July. This represented the largest one-month decline since April 2020 in the early stages of the Covid pandemic and was also significantly below the 11.1 million FactSet estimate.

The total separations increased by 182,000 while the number of hires increased marginally. The number of resignations, or people who voluntarily left their jobs, increased by 100,000 for the month to 4.16 million.

The Federal Reserve, which is attempting to stop runaway inflation by raising interest rates five times this year for a total of three percentage points, closely monitors the Job Openings and Labor Turnover numbers.

The extremely tight labor market, which had been showing about two job openings for every available worker, has been one of the central bank’s main areas of interest. In August, that ratio decreased to 1.67 to 1.

Due to the excessive demand for the limited labor pool, which has helped drive up wages sharply, the job market has been a major contributor to inflation. The announcement on Tuesday precedes the nonfarm payrolls report for September, which is predicted by Dow Jones to show an increase of 275,000. 

New Reserve Bank of New Zealand’s Cash Rate 7-year Highest

The central bank of New Zealand raised interest rates on Wednesday to their highest level in seven years and warned that there would be more pain ahead as it tries to quell soaring inflation in a stretched-thin economy.

The official cash rate was increased by 50 basis points to 3.5% by the Reserve Bank of New Zealand (RBNZ) policy committee, the eighth increase in a year and the fifth such large adjustment.

Given the severe price pressures in the economy, the committee even discussed whether to increase by 75 basis points before deciding on a move of half a point.

“The Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment,” said RBNZ Governor Adrian Orr.

“Core consumer price inflation is too high and labor resources are scarce.”

The Reserve Bank of Australia’s dovish shift to a quarter-point hike at its policy meeting on Tuesday contrasted with the hawkish commentary.

The kiwi dollar increased by 0.9% to $0.5782 as a result of investor reaction, and two-year swap rates increased by 6 basis points to 4.51%. Tuesday saw rates drop by 25 basis points, the biggest daily drop since 2001.

The likelihood that the RBNZ would raise interest rates by an additional 50 basis points at its next meeting in November, with rates peaking at 4.5% by May, was greater than 60%, according to the markets.

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Author

  • Phyllis Wangui

    Phyllis Wangui is a Financial Analyst and News Editor with qualifications in accounting and economics. She has over 20 years of banking and accounting experience, during which she has gained extensive knowledge of the forex, stock news, stock market, forex analysis, cryptos and foreign exchange industries. Phyllis is an avid commentator on these topics and loves to share her insights with others through financial publications and social media platforms.