US stocks rose sharply on Tuesday as Wall Street focused on strong earnings reports and the potential smoothing of interest rate rises in a short and mostly uneventful Thanksgiving trading week.
The S&P 500 and the tech-heavy Nasdaq Composite rose about 1.4% each, with the former closing above 4,000 for the first time since September.
However, the S&P 500 started Thanksgiving week lower compared to previous years.
Data from Bespoke Investment Group showed the index traded slightly lower, down 0.1% on Monday. In other years, even when the S&P 500 has been down 10% year-to-date or more, returns have been more positive, reaching as much as 0.37% in gains on average.
Also on Tuesday, the Dow Jones Industrial Average rose 1.2%, accounting for a 400-point rise to its highest close in three months.
The rise in the stock market came after the president of the Federal Reserve Bank of Cleveland, Loretta Mester, said that she and other members of the Federal Open Market Committee (FOMC) had a clear objective: to restore prices’ stability. The FOMC sets monetary policy.
Also, speaking at an event hosted by her bank, Ms. Mester said the committee was committed to using its tools to get inflation on a sustainable downward trajectory to 2%.
However, just a day earlier, Federal Reserve Bank of San Francisco President Mary Daly said Fed officials could raise the US central bank’s key policy rate above 5% if inflation doesn’t abate.
On Monday, Ms. Daly also stated that the idea of canceling a 75 basis point hike in December was “premature,” adding that nothing was off the table, referring to the interest rate increases.
The stock moves on Monday showed corporate shares soaring, including those of Abercrombie & Fitch C. and American Eagle Outfitters, Inc, which gained about 21% and 18%, respectively, after positive earnings reports lifted stock investors’ confidence in the retail sector.
However, shares of Zoom Video Communications fell about 4% after the company cut its annual revenue outlook. In addition, the video conferencing platform projected other challenges as demand for online meetings wanes.
Meanwhile, commodity markets also saw big moves on Tuesday after oil, which fell to January lows, pared losses the day before amid fears China will continue to impose strict lockdowns.
In addition, fears that an increase in production reported by Saudi Arabia and OPEC will weigh on demand also had an impact on the industry.
However, the energy minister, Prince Abdulaziz bin Salman, refuted reports of an increase in oil production, causing prices to recover from falls.
After Saudi Arabia denied the reports on Monday, West Texas Intermediate (WTI) crude futures rose around $81 a barrel from $75 a barrel the previous day.
In China, a sharp rise in cases has prompted authorities to impose new restrictions, sending the world’s largest economy into increasingly aggressive lockdowns.
According to Hargreaves Lansdown senior market and investment analyst Susannah Streeter, the Covid specter still hangs over the Chinese economy and threatens to affect the supply chain and demand for goods.
Meanwhile, in Europe, equity markets also rallied. The pan-European Stoxx 600 closed provisionally at 0.8%, reaching its highest level in three months.
Saudi Arabia’s comments on alleged plans to increase oil production also positively impacted European stocks, with oil and gas stocks rising 4.7%. Additionally, mining stocks were up 2.7%.
Scottish oil and gas company Harbor Energy was among the best performers on Tuesday after being the worst on Monday. It pared its losses to rise 7%. Pipe maker for the energy industry Tenaris, the UK’s BP, and Spanish energy company Repsol rose 6.5%.
In addition, energy giants Shell and Totalenergies rose by 5%.
However, the telecommunications, financial services, and household goods sectors fell by 0.1%.
Investors continue to keep a close eye on central banks’ monetary policy and how the increases could affect the market.
On Tuesday, the Organization for Economic Cooperation and Development (OECD) said Europe would bear the brunt of the global economic slowdown as energy prices rise.
The Russia-Ukraine war has also caused business activity to decline, contributing to Europe’s struggle against the economic slowdown.
However, investors still seem optimistic about the lower-than-expected US inflation figures for October. Many are betting that the Fed will stop aggressive interest rate hikes.