Wall Street is reaching its best day since the summer. S&P 500 climbs 2.6%

Stocks on Wall Street rose to their best day in months on Monday as falling bond yields eased some of the pressure weighing on markets.

The Standard & Poor’s 500’s 2.6 percent jump was its biggest since July, the latest swing for a market that has fallen mostly this year on worries about a possible global recession. The key gauge of Wall Street’s health had its worst month since the coronavirus decimated markets at the start of 2020 and is still down nearly 23% for the year.

The Dow Jones industrial average jumped 2.7 percent and the Nasdaq composite gained 2.3 percent in Monday’s extended rally that swept the vast majority of U.S. stocks higher.

The respite was a drop in bond yields, which have been rising at market-shattering speed for most of the year. The yield on the 10-year Treasury, which helps set interest rates on mortgages and many other types of loans, fell to 3.64 percent from 3.83 percent late Friday. It was up as much as 4% last week after starting the year at just 1.51%.

Helping to boost markets was a weaker-than-expected US manufacturing report, along with data showing a drop in construction spending. While this may seem discouraging for the economy, it could mean that the Federal Reserve will not need to be as aggressive in raising interest rates in order to beat high inflation that is hurting household finances.

By raising interest rates, the Fed makes it more expensive to buy a home, a car, or anything else bought with credit. The hope is to slow the economy enough to starve the inflation of the markets needed to keep prices rising so fast. But the Fed also risks triggering a recession if it goes too far.

The Fed has already cut its key overnight rate to a range of 3% to 3.25%, from near zero as recently as March. Most traders expect it to be more than a full percentage point higher early next year.

The yield on the two-year Treasury, which more closely tracks expectations for Fed action, fell to 4.11 percent from 4.27 percent after weaker-than-expected reports on the economy.

In addition to stocks, lower interest rates also boost prices such as cryptocurrencies and gold, which can suddenly look more attractive when bonds pay less income.

High-growth stocks and particularly risky or expensive investments have been most affected by interest rate changes. Bitcoin rallied on Monday on the break in yields, while tech stocks were the biggest gainers to lead the S&P 500. Apple and Microsoft rose more than 3%.

Overall, the S&P 500 climbed 92.81 points to close at 3,678.43. The Dow gained 765.38 to 29,490.89 and the Nasdaq rose 239.82 to 10,815.43.

However, cross-currents continue to move through the markets and analysts largely expect sharp price swings to continue.

Crude oil prices jumped on Monday amid speculation that major oil-producing countries could soon announce production cuts. This adds upward pressure on inflation.

It also lifted shares of energy companies to big gains. Exxon Mobil jumped 5.3% and Chevron 5.6%.

Monday’s rally came despite an 8.6 percent drop in Tesla, one of the most influential stocks on Wall Street because of its massive market value. The electric vehicle maker delivered fewer vehicles from July to September than investors expected.

More market turmoil could come on Friday when the latest US labor market update is released. Along with its inflation reports, the US government jobs report was one of the most anticipated data on Wall Street each month.

It will be the last jobs report before the Fed makes its next rate decision, scheduled for Nov. 2, and the continued strength will give the central bank more room to continue hiking. Traders say the most likely move is a fourth straight rise of three-quarters of a percentage point.

For markets to make a meaningful move, many investors say they need to see a break in inflation that will cause the Fed to ease back on its aggressive path.

Investor hopes for such a Fed pivot have resurfaced repeatedly this year, only to be dashed by further accelerations in inflation.

But with pressures mounting on financial markets as central banks around the world raise interest rates in concert, conditions have entered “the danger zone where ‘bad things’ happen,” according to Michael Wilson, an equity analyst at Morgan Stanley.

That could make the Fed blink at some point. The problem, Wilson says, is that another force weighing on markets could soon come to the fore: weaker corporate earnings.

A range of challenges, from higher interest rates to the rising value of the US dollar, could be setting the stage for “the freight train of the coming earnings slump,” he wrote in a report. Companies are now preparing to report in the coming weeks how much they earned over the summer, and analysts are downgrading their expectations.

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