US Stocks Climb in Broad Rally as Yields Slide: Markets Wrap

(Bloomberg) — US stocks rallied as risk sentiment picked up with Treasury yields easing and the dollar falling ahead of results from midterm elections.

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The S&P 500 extended gains into a third day in a broad-based advance with all 11 major industry groups advancing except energy. The tech-heavy Nasdaq 100 and the blue-chip Dow Industrial Average outperformed, rising more than 1.5%.

The yield on two-year Treasuries, more sensitive to Federal Reserve policy changes, shed 5 basis points, while dollar fell against most of its major counterparts. Bitcoin pared losses on news Binance Holdings Ltd. agreed to acquire its most formidable rival, FTX.com.

A history of robust performance following midterm results has helped buoy optimism about the outlook for equity markets. While polls suggest Republicans could make gains, thereby placing a check on Democratic policies, there are multiple scenarios. The best outcome for Treasuries could be a Republican control of both the House of Representatives and Senate, while the dollar could find support should Democrats keep both chambers.

Read more on elections:

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Here Are Key Races to Watch Hour by Hour as Midterm Voting Ends

Still, for many the biggest headwind for markets is the Fed’s monetary tightening with Thursday’s consumer-price-index data the next event risk coming on the heels of core consumer prices rising more than forecast to a 40-year high in September. Even if prices begin to moderate, the CPI is far above the Fed’s comfort zone.

Story continues

Going forward, though, there may be a silver lining in gridlock for policy makers, according to Art Hogan, chief market strategist at B. Riley Wealth.

“Divided government, particularly leading into a presidential election, will most likely create a standstill where very little gets done,” Hogan wrote. “That’s probably a good thing for the Fed because various stimuli have not made their work easier.”

More commentary

• “The inflation statistics are going to be more important than the election,” Michael Darda, chief economist at MKM Partners, said on Bloomberg TV. “Inflation will tend to lag the cycle so if you have the Fed chasing down lagging indicators with a very rapid succession of interest rate increases and quantitative tightening, there is a very significant risk that the Fed significantly overshoots neutral.”

• “The gridlock rally is a bit overdone, as we were already there,” said Victoria Greene, G Squared Private Wealth CIO. “Investors will need to temper expectations on results coming in this evening. Many contested races it might be weeks, or god forbid, months before we know results. Politics matters personally, less so to the markets.”

Treasuries rallied across the board Tuesday, with the benchmark 10-year rate dropping as much as 8 basis points. Meanwhile, traders shaved bets on rate hikes, with swap markets still leaning toward a 50 basis-point Fed hike in December. More notable moves were further out, with the peak reaching just above 5% in the first half of 2023.

Nvidia Corp. climbed as it began producing a processor for China. Take-Two Interactive Software Inc. fell after reducing its forecast for net bookings.

Europe’s Stoxx 600 rallied, after a weak open. Chinese equities halted a rally as traders considered a jump in virus infections and official comments defending Covid Zero.

Key events this week:

• US midterm elections, Tuesday

• EIA oil inventory report, Wednesday

• China aggregate financing, PPI, CPI, money supply, new yuan loans, Wednesday

• US wholesale inventories, MBA mortgage applications, Wednesday

• Fed officials John Williams, Tom Barkin speak at events, Wednesday

• US CPI, US initial jobless claims, Thursday

• Fed officials Lorie Logan, Esther George, Loretta Mester speak at events, Thursday

• US University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.2% as of 11:59 a.m. New York time

• The Nasdaq 100 rose 1.7%

• The Dow Jones Industrial Average rose 1.6%

• The Stoxx Europe 600 rose 0.8%

• The MSCI World index rose 1.3%

Currencies

• The Bloomberg Dollar Spot Index fell 0.6%

• The euro rose 0.7% to $1.0086

• The British pound rose 0.7% to $1.1591

• The Japanese yen rose 0.8% to 145.42 per dollar

Cryptocurrencies

• Bitcoin fell 1.5% to $20,371.5

• Ether fell 1.9% to $1,546

Bonds

• The yield on 10-year Treasuries declined eight basis points to 4.14%

• Germany’s 10-year yield declined six basis points to 2.28%

• Britain’s 10-year yield declined nine basis points to 3.55%

Commodities

• West Texas Intermediate crude fell 1% to $90.83 a barrel

• Gold futures rose 2.3% to $1,719.60 an ounce

–With assistance from Jan-Patrick Barnert, Haidi Lun, Brett Miller, Srinivasan Sivabalan, Emily Graffeo, Isabelle Lee and Natalia Kniazhevich.

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