US stocks rose Monday as the market recouped some of the heavy losses caused by the Federal Reserve’s change of course.
The Dow Jones Industrial Average rose 586.89 points, or nearly 1.8%, to 33,876.97, marking its best day since March 5th. The blue chip benchmark bounced back from its worst week since October. The S&P 500 gained 1.4% to 4,224.79, within 1% of its record high after Monday’s comeback rally. The Nasdaq Composite was the relative underperformer, up 0.8% to 14,141.48 as some major tech companies like Amazon, Tesla, Nvidia and Netflix posted losses.
Commodity stocks, which were hit hard last week, led the market comeback on Monday as the S&P 500 energy sector rallied. Devon Energy was up nearly 7% while Occidental Petroleum was up about 5.4%. Games reopenings, including Norwegian Cruise Line and Boeing, both rose more than 3%. Banks, including JPMorgan, Bank of America, and Goldman Sachs, also rallied. The Russell 2000 small cap rose more than 2%.
These sectors, tied to the economic recovery, led the stocks to sell off last week. The S&P 500’s financial and raw materials sectors lost more than 6% for the week, while the energy sector was down more than 5% and the industrial sector was down more than 3%.
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US stocks fell last week as investors digested new Fed economic forecasts and worried rate hikes could come earlier than expected. The central bank raised its inflation expectations last Wednesday and forecast interest rate hikes for 2023.
“The Fed-inspired sell-off seems excessive,” said Fiona Cincotta, senior financial analyst at City Index. “The Fed’s sudden hawkish shift last week with two rate hikes now expected in 2023 took the market by surprise.”
The President of the St. Louis Fed, Jim Bullard, told CNBC on Friday that it was natural for the central bank to tend a little more “hawkish” and see higher interest rates as early as 2022.
The Dow was down about 3.5% last week, while the S&P 500 and Nasdaq were down 1.9% and 0.2%, respectively, over the course of the week.
“The Fed’s ‘surprise’ move in tapering the markets down last week is only when a tightening trend is recognized that began months ago,” said Mike Wilson, chief strategist for US equities in a message. “Combined with the highest rate of change in economic and earnings revisions, this makes for a more difficult summer.”
The U.S. market was resilient on Monday amid an overnight decline in the Asian market and a sharp decline in Bitcoin. The Japanese Nikkei 225 fell as much as 4% at one point on Monday, with automakers Nissan and Honda taking the lead. It closed 3.3% lower.
Meanwhile, Bitcoin slipped more than 7% to $ 32,500 as China resumed crackdown on cryptocurrency mining.
The yield curve for government bonds flattened last week, hit the banks and sent a signal of a possible economic slowdown. Yields on shorter-term government bonds such as the 2-year bond rose – reflecting expectations for the Fed rate hike. Longer-term returns like the 10-year note fell – a sign of less optimism about economic growth.
