S&P 500 Rebounds as Oil Prices and Bond Yields Decline
US equities posted their strongest gain in six weeks, driven by a drop in crude oil prices and a retreat in Treasury yields following the Federal Reserve's rate hike.
The S&P 500 index rose 1.1% on Thursday. This marked its second increase in the last nine trading days. The Dow Jones Industrial Average gained 316 points, or 0.6%. The Nasdaq composite climbed 1.7%.
Market pressure eased as Brent crude oil prices fell 1% to settle at $104.82 per barrel. This decline followed a peak near $110 earlier in the week. The drop helped pull Treasury yields lower, reducing the burden on equity valuations.
Treasury yields retreat after rate hike
The yield on the 10-year Treasury note fell to 4.93% from 5.01% late Wednesday. The Federal Reserve raised the federal funds rate by 25 basis points on Wednesday. This was the first increase in more than three years.
Officials signaled a potential additional hike this year to combat inflation. Higher borrowing costs typically slow economic activity and lower asset prices. However, the move also signaled the Fed's commitment to its 2% inflation target.
Sector performance reflects shifting risk appetite
Artificial intelligence stocks rebounded from earlier losses. Nvidia shares climbed 2.5%, while Advanced Micro Devices rose 6.4%. This occurred despite new reports of concerning behavior in AI models and industry calls for a development pause.
Homebuilder stocks also advanced against the trend. D.R. Horton shares rose 1.5% despite weak new home starts data. The housing sector has faced significant headwinds from mortgage rates linked to the 10-year Treasury yield.
Economic data suggests resilience to higher rates
New data indicated the US economy may withstand higher interest rates. Fewer workers applied for unemployment benefits last week than expected. Manufacturing growth in the mid-Atlantic region also exceeded economist forecasts.
Fed Chairman Kevin Warsh cited a strengthening economy as a reason for the rate hike. He also pointed to geopolitical risks, specifically the impact of the war with Iran on oil prices. GN auto markets/bonds noted that these factors drive current volatility.
