U.S. stocks traded sharply higher Monday, rallying as investors awaited a deluge of corporate earnings and a U-turn on tax policy by the U.K. government soothed global bond markets.
What’s happening
- The Dow Jones Industrial Average DJIA, +1.47% was up 538 points, or 1.8%, at 30,173, after rising 677 points at its session high.
- The S&P 500 SPX, +2.31% was up 96 points, or 2.7%, at 3,679.
- The Nasdaq Composite jumped 343 points, or 3.3%, at 10,664.
Stocks fell last week in extremely volatile trade, with major indexes reversing steep losses Thursday to end sharply higher only to tumble on Friday. The Dow saw a 1.2% weekly fall, while the S&P 500 shed 1.6% and the Nasdaq Composite lost 3.1%.
What’s driving markets
Last week’s volatile activity, particularly Thursday’s intraday turnaround, had analysts pondering whether the stocks were exhibiting behavior associated with market bottoms.
“One way to know if markets are overstretched is if negative news fails to sink equity markets further. What we saw last Thursday was different, namely a deep pool of bargain hunters,” said Sebastien Galy, senior macro strategist at Nordea Asset Management, in a note.
“What we saw was likely extreme bearish positioning being reduced. This is an encouraging sign, but it is not yet a new dawn — we continue to prefer cautious positions,” he said.
Some relief was attributed to a sharp pullback by yields on U.K. government bonds, known as gilts, after new Chancellor of the Exchequer Jeremy Hunt abandoned the majority of the £45 billion ($50.9 billion) in previously announced unfunded tax cuts that were blamed for sparking a bout of global market volatility and stoking fears of a broader breakdown of the global financial system.
See: U.K. chancellor throws out almost all major tax cuts from the mini-budget and pares back energy support
The yield on the 30-year gilt TMBMKGB-30Y, 4.367% fell 47 basis points, or 0.47 percentage points, even as a temporary Bank of England bond purchase program ended.
Earnings season was also set to pick up steam after a round of earnings from major Wall Street banks n Friday. Investors welcomed results Monday from Bank of America Corp. BAC, +4.70%, while Goldman Sachs Group Inc. GS, +1.95% was due to report Tuesday.
The New York Fed’s Empire State manufacturing index fell for a third straight month, declining 8 points to negative-9.1, compared with expectations for a reading of negative-5.
Companies in focus
- Bank of America shares rose 5.5% after the bank topped Wall Street’s earnings, revenue and net interest income expectations for the third quarter.
- Shares of Dow component Goldman Sachs rose 2.4% after The Wall Street Journal reported the investment-banking giant plans to combine its flagship investment-banking and trading businesses into one unit, while merging asset and wealth management into another.
- Rupert Murdoch has proposed a recombination of Fox Corp. FOXA, -8.10% FOX, -7.10% and News Corp, NWSA, +5.06% NWS, +4.07% the two wings of his media empire, nearly a decade after they split, The Wall Street Journal reported. News Corp. is the parent company of Dow Jones, publisher of The Wall Street Journal and MarketWatch, as well as other assets including HarperCollins Publishers and news organizations in the U.K. and Australia. News Corp. shares rose 4.8%, while Fox shares were down 7%.