The S&P 500 rose 1.5 per cent, its third straight gain and biggest since early June. The Dow Jones rose by 0.8 per cent and the Nasdaq composite finished 1.7 per cent higher.
Big tech stocks powered much of the rally. Apple rose 2.2 per cent and Nvidia climbed 4.2 per cent. Advancers outnumbered decliners by 4 to 1 on the New York Stock Exchange. Bond yields fell broadly. Markets in Europe and Asia also rose.
The latest gains came as investors reviewed reports on consumer confidence and the labor market. The Conference Board, a business research group, reported that consumer confidence tumbled in August, surprising economists who were expecting levels to hold steady around the strong July reading. Consumer confidence and spending have been closely watched amid persistent pressure from inflation.
Also overnight, the US government reported that job openings fell to the lowest level since March 2021, a larger drop than economists expected. The report also showed that the number of Americans quitting their jobs fell sharply for the second straight month, clear signs that the labor market is cooling in a way that could reduce inflation.
A strong job market has been credited as a bulwark against a recession, but it has made the Fed’s mission to tame inflation more difficult. The latest data will likely be welcomed by the central bank because fewer job openings and less quitting reduces pressure on employers to raise pay to find and keep workers.
“Markets reacted to the release of the consumer confidence and job opening reports by rallying, with both bonds and stocks up on the news as odds for a Federal Reserve rate hike at their next meeting in September fell,” said Sam Millette, fixed income strategist for Commonwealth Financial Network.
Wall Street is betting that the Fed will hold rates steady again at its September meeting, according to CME’s FedWatch tool. The data on job openings and consumer confidence may have helped persuade the outlook for what the Fed will do at its November policy meeting. The bets on the side of no change in rates by the Fed rose from about 38 per cent on Monday to just under 50 per cent Tuesday.
The Fed has been raising its main interest rate for more than a year to its highest level since 2001, in an effort to bring inflation back down to its 2 per cent goal. The central bank held rates steady at its last meeting and Wall Street is betting that it will do the same at its September meeting.
“My gut tells me the Fed is close to being done with rate hikes, but we need to see more traction with some of these numbers we saw today,” said Jason Betz, private wealth advisor at Ameriprise Financial.
Investors and economists have several more big economic reports on tap this week. The government will provide another update on the nation’s gross domestic product on Wednesday. It will also release its monthly employment report for August on Friday.
A key inflation update is expected on Thursday when the government releases its personal consumption and expenditures (PCE) report for July. It is the Fed’s preferred measure for inflation and has been cooling for months. It eased to 3 per cent in June and was as high as 7 per cent a year ago.
If the PCE report indicates inflation is coming down at a faster pace, and if the jobs report shows wage growth and hiring have weakened, that could bring down the likelihood of a rate hike in November even further, said Quincy Krosby, chief global strategist for LPL Financial.
The Fed has said it is prepared to continue raising interest rates to cool inflation, but will base its decisions on the latest economic data.
The threat of rates staying higher for longer led to a pullback for stocks this month following what had been a banner year. The S&P 500 is down 2 per cent this month after soaring 19.5 per cent through July. It remains about 17 per cent higher for the year, while the tech-heavy Nasdaq is up more than 33 per cent.
All told, the S&P 500 rose 64.32 points to 4,497.63, the Dow added 292.69 points, or 0.8 per cent, to 34,852.67, and the Nasdaq gained 238.63 points to 13,943.76.
Bond yields fell. The yield on the 2-year Treasury, which tracks expectations for the Fed, fell significantly following the latest consumer confidence and job openings reports. It slipped to 4.90 per cent from about 5.03 per cent just before the report was out. It stood at 5.05 per cent late Monday.
The 10-year Treasury yield also fell, dropping to 4.12 per cent from 4.21 per cent late Monday. The yield, which influences interest rates on mortgages and other loans, climbed close to its highest level since 2007 last week.
Wall Street also reviewed the latest earnings from several big retailers Tuesday.
Best Buy rose 3.9 per cent after the consumer electronics retailer beat Wall Street forecasts, even as second-quarter profit and sales declined from a year ago. Discount retailer Big Lots surged 26.8 per cent after reporting strong financial results.
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
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