Raymond Kanyo, CFA
MarketBites: Market Posts 3-Day Rally
Portfolio Manager Commentary:
The S&P 500 Index has posted its biggest three-day gain since May 27. Consumer discretionary and technology stocks have been the main forces behind the recent rally.
The rise in stocks comes despite the economy continuing to show more weakness. Thursday's jobless claims data showed softness in the labor market, while the Philadelphia-area manufacturers' outlook for business conditions fell to its lowest since 1979. The aforementioned weak economic data caused a rally in the Treasury market, causing the 10-Year Treasury to fall to 2.88%.
The European Central Bank shocked markets when it announced a 0.50% rate hike. The move is aimed at slowing the European economy to counter inflation. The measure comes despite the continent's concerns over the energy crisis, and heavy political uncertainty within Italy and the United Kingdom.
It seems the recent climb in stocks could be tied to a decline in interest rate hike expectations. The bond market is calling the "Fed's bluff" and implying that the Federal Reserve will return to dropping interest rates by next year. It remains to be seen if the bond market is correct on this call.
Chart of the Day:
The European Central Bank decided to hike rates by 0.50% yesterday, the first increase in 11 years.
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