Sharp Pullback By Treasury Yields Contributes To Extended Rally On Wall Street

Stocks moved sharply higher over the course of the trading day on Tuesday, extending the rally seen over the two previous sessions. With the continued advance, the major averages all reached their best closing levels in over a month.

The major averages reached new highs in the final hour of trading but gave back some ground going into the close. The Dow jumped 337.12 points or 1.1 percent at 31,836.74, the Nasdaq soared 246.50 points or 2.3 percent to 11,199.12 and the S&P 500 surged 61.77 points or 1.6 percent to 3,859.11.

The extended rally on Wall Street came amid a sharp pullback by treasury yields, with the yield on the benchmark ten-year note showing a steep drop after ending the previous session at a fourteen-year closing high.

The pullback by treasury yields came as traders continue to express optimism the Federal Reserve will signal a slower pace of interest rate hikes following its meeting next week.

The Fed is widely expected to raise interest rates by another 75 basis points next week, although CME Group’s FedWatch Tool shows the chances for a 50 or 75 basis point rate hike in December are split roughly fifty-fifty.

While public comments from Fed officials have largely been hawkish, a recent report from the Wall Street Journal suggested some are growing uneasy about the impact the aggressive rate hikes are having on the economy.

The markets also benefited from a positive reaction to the latest earnings news, with General Motors (GM) and Coca-Cola (KO) posting strong gains after reporting better than expected third quarter earnings.

Traders may also have been expressing optimism about the upcoming release of quarterly results from several tech giants.

Sector News

Interest rate sensitive commercial real estate stocks turned in some of market’s best performances, with the Dow Jones U.S. Real Estate Index spiking by 4.0 percent.

Optimism about the Fed slowing the pace of rate hikes also contributed to substantial strength among housing stocks, as reflected by the 4.0 percent surge by the Philadelphia Housing Sector Index.

Networking stocks also saw considerable strength on the day, driving the NYSE Arca Networking Index up by 3.4 percent to its best closing level in over a month.

Tobacco, computer hardware, chemical and telecom stocks also moved notably higher, reflecting broad based buying interest.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Tuesday. Japan’s Nikkei 225 Index shot up by 1.0 percent, while China’s Shanghai Composite Index closed just below the unchanged line.

Meanwhile, European stocks moved mostly higher on the day. While the U.K.’s FTSE 100 Index ended the day nearly unchanged, the German DAX Index advanced by 0.9 percent and the French CAC 40 Index surged by 1.9 percent.

In the bond market, treasuries showed a significant move back to the upside following recent weakness. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled by 12.6 basis points to 4.108 percent.

Looking Ahead

Reaction to the latest earnings news may drive trading on Wednesday, with Alphabet (GOOGL), Microsoft (MSFT), Mattel (MAT), Spotify (SPOT) and Visa (V) among the companies releasing their quarterly results after the close of today’s trading.

Boeing (BA), Bristol-Myers (BMY), Kraft Heinz (KHC) and Harley-Davidson (HOG) are also among the companies due to report their quarterly result before the start of trading on Wednesday.

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