Fed-Obsessed Traders Lift Stocks as Yields Slide: Markets Wrap

(Bloomberg) — Wall Street saw another day of big reversals, with stocks notching their best week since June after a Treasury rout sputtered. The yen jumped as Japan intervened again to prop up the currency.

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At a time when traders have been fixated on the outlook for interest rates, it’s no surprise that all the drama in the world’s biggest bond market would dictate sentiment. After being all over the place in early trading, equities climbed strongly as US yields fell from multiyear highs.

“The story this week is all about the volatility in rates, huge volatility in Treasuries,” said Keith Lerner, chief market strategist at Truist Advisory Services. “But I would say, overall, relative to how much interest rates have moved up, I would say the market has held in there pretty well.”

Traders also kept a close eye on the latest Fedspeak.

US central bankers said the next phase in their campaign to curb inflation will be to debate how high to raise rates and when to slow the pace of increases. St. Louis Fed President James Bullard and his San Francisco counterpart Mary Daly made clear they expect the discussion to be on the table at the November gathering while stressing the need to keep tightening.

Read: Fed’s Evans Sees Further Rate Hikes Ahead, Policy Then on Hold

Equity funds are still seeing inflows, with “final capitulation” not yet here, said Bank of America Corp. strategists. Global stock funds had inflows of $9.2 billion in the week through Oct. 19, according to a note from the bank citing EPFR Global data.

“The equity market is trying to form a bottom to get to the last leg of the bear market,” said David Donabedian, chief investment officer of CIBC Private Wealth US. “It feels like a two-way market right now. We have a tug of war going on between the skeptics and those who think it is time to own equities.”

He noted that the Fed is not done raising rates and valuations are still not as low as he would expect to see at the bottom of a bear market.

“We are just not there yet,” Donabedian added.

Some of the main moves in markets:

Stocks

The S&P 500 rose 2.4% as of 4 p.m. New York time
The Nasdaq 100 rose 2.4%
The Dow Jones Industrial Average rose 2.5%
The MSCI World index rose 1.5%

Currencies

The Bloomberg Dollar Spot Index fell 0.8%
The euro rose 0.8% to $0.9862
The British pound rose 0.6% to $1.1301
The Japanese yen rose 1.7% to 147.66 per dollar

Cryptocurrencies

Bitcoin rose 0.9% to $19,201.33
Ether rose 1.7% to $1,304.22

Bonds

The yield on 10-year Treasuries declined one basis point to 4.22%
Germany’s 10-year yield advanced one basis point to 2.42%
Britain’s 10-year yield advanced 14 basis points to 4.05%

Commodities

West Texas Intermediate crude rose 0.8% to $85.17 a barrel
Gold futures rose 1.4% to $1,660.30 an ounce

–With assistance from Vildana Hajric and Emily Graffeo.