Despite a choppy start, the stock market closed higher on Monday ahead of earnings reports from major tech companies this week.
The Dow Jones closed at 31,499.62, rising by 1.3 percent or 417.06 points, while the tech-leaning Nasdaq ended the trading day at 10,952.61, gaining 0.9 percent or 44.59 points. The S&P 500 hit 3,797.34 at closing, surging 1.2 percent or 44.59 points. Technology, finance and healthcare sectors contributed to most of the S&P 500’s gains on Monday.
Facebook, Google, Amazon and Apple will publish their quarterly earnings reports this week. The four companies have the most expensive stocks within the S&P 500 index, and their earnings can affect the fluctuation of the stock market.
“In general, the market is sitting back and there are a few data points people are waiting to see,” Natixis Investment Managers Solutions strategist Jack Janasiewicz said.
Other than major indices, stocks of small companies also saw gains, with the Russel 2000 closing at 1,748.40, rising 0.4 percent or 6.16 points.
October data showed volatility within the stock market, but major indices generally went up following last week’s rallies. The Dow Jones went up 9.7 percent, the Nasdaq was up 3.6 percent and the S&P 500 gained 5.9 percent throughout this month.
On Monday, bond yields surged, which experts considered “bad news,” unlike the growth in stocks. The 10-year Treasury yield closed at 4.25 percent, while the two-year was at 4.50 percent. Analysts said that it showed fears toward an upcoming interest rate hike by the Federal Reserve.
Like the U.S., financial markets in other countries also experienced volatility in the past weeks. The U.K. government bonds strengthened following the news of Rishi Sunak's appointment as the new prime minister.
On the other hand, the Chinese market declined after Xi Jinping extended his term as the country’s leader. Stocks of two major companies, Alibaba and JD.com, declined by 12.5 percent and 13 percent, respectively. Xi plans to expand the Communist Party’s role in business and tech development, causing stakeholders to worry about “stunted” economic growth.
Fed’s interest rate hikes
The central bank began increasing interest rates in March to address post-pandemic inflation, with the latest three increases being at 75 basis points. Analysts have predicted that the Fed will do another three-quarter of a point hike next week.
This monetary approach caused an economic contraction in the U.S. in the first half of 2022. Stakeholders are worried that the Fed may “go too far” and send the economy into a recession.
The Fed’s current monetary policy significantly affects pricier stocks, like tech companies. As a result. investors are more likely to choose less-risky stocks to protect their funds and give up their tech stocks.
The consecutive interest rate hikes also increase borrowing costs, negatively impacting the housing market. Freddie Mac reported that the key 30-year mortgage rate average had gone up to 6.94 percent, as opposed to 3.09 percent in 2021. This mortgage rate increase causes a decline in housing development.
Although earlier reports said that Fed officials generally had agreed on maintaining a hawkish policy, San Francisco Fed president Mary Daly made a statement about toning it down.
“I think the time is now to start talking about stepping down,” Daly said on Friday. “The time is now to start planning for stepping down.”