S&P 500 logs best day in 6 months as optimism grows that Fed is done hiking rates

By Joy Wiltermuth and Joseph Adinolfi

S&P 500's 4-day winning streak is the best in a year

The S&P 500 posted its best day since late April as stocks extended gains into a fourth day and bond yields slumped. Traders were cheering signs that the Federal Reserve may forgo further interest-rate hikes.

What happened

The Dow Jones Industrial Average DJIA gained 564.50 points, or 1.7%, ending at 33,839.08. The S&P 500 SPX rose 79.92 points, or 1.9%, closing at 4,317.78, its best daily percentage gain since April 27, according to Dow Jones Market Data.The Nasdaq Composite COMP gained 232.72 points, or 1.8%, finishing at 13,294.19. The S&P 500 also scored its biggest four-day percentage gain since Nov. 15, 2022.

On Wednesday, the Dow rose 222 points, or 0.67%, to 33,275, logging its biggest three-session advance since April, Dow Jones Market Data show.

What drove markets

Wall Street stepped up a four-day rally Thursday, putting the S&P 500's financials and consumer-discretionary sectors up nearly 6% on the week, according to FactSet data.

The rally in equities intensified after the Federal Reserve kept interest rates on hold Wednesday. The main focus in markets was on the central bank's hints that rising bond yields have been doing some of its inflation-fighting work for it.

"It's kind of overdue," David Kelly, chief global strategist at JPMorgan Asset Management, said in a call with MarketWatch. "I think people were a little too pessimistic about the economy, inflation and the Fed."

Kelly said the risk of a recession has receded for the near term, although the odds of one are likely increasing next year. "But people are also getting more comfortable with the idea that inflation is going to gradually slide, which is helping bring Treasury yields lower."

See: Why stock-market bulls say 'Santa rally' may have already started as equities surge to kick off November

The 10-year Treasury yield was down 12.2 basis points at 4.668%, near its lowest level in nearly three weeks, according to Dow Jones Market Data. Bond yields move inversely to prices.

"Obviously, the market is reacting positively," Peter Cardillo, chief market economist at Spartan Capital Securities, said in a phone interview.

"The fact that [Federal Reserve Chair Jerome] Powell paused for the second [meeting] in a row and basically indicated that rising yields are doing the Fed's work by saying yields would dampen activity going forward -- to me, this suggests that he's finished with the tightening cycle," Cardillo said.

Jamie Dimon, chief executive of JPMorgan Chase & Co. (JPM), on Thursday warned of the chance of additional rate hikes, saying the megabank was prepared in the event 10-year Treasury yields BX:TMUBMUSD10Y rise to 7%-8%.

Retreating U.S. bond yields helped lift stocks Thursday, with the S&P 500 poised to rise for a fourth day, putting it on pace for its biggest four-day percentage gain in roughly a year, according to Dow Jones Market data.

Favorable labor-market data released ahead of Friday's October jobs report also helped spur a buying mood. A weekly report on jobless claims showed the number of Americans who applied for unemployment benefits last week increased by 5,000 to a seven-week high of 217,000.

Strategists also focused on a quarterly U.S. government reading on labor-market productivity, which surpassed economists' expectations while showing that labor costs have fallen.

A 0.8% decline in unit labor costs marked the first decline since the fourth quarter of last year. Cardillo said signs of cheaper labor helped boost demand for stocks Thursday.

After the closing bell, investors will receive earnings from Apple (AAPL) as they wait for Friday's October jobs report.

They'll be watching carefully as Apple, which is one of the "Magnificent Seven" tech stocks, lays out its latest results and guidance following a batch of earlier reports from other megacap technology companies that weren't well received by the markets.

Finally, the Bank of England on Thursday opted to follow the Fed and hold rates steady for a second straight meeting, although the vote was closer than expected: 6 to 3 in favor of keeping rates at 5.25%.

Stocks in focus

Crocs Inc.'s stock CROX fell 5.3% Thursday after the shoemaker's fourth-quarter earnings projections fell short of analyst estimates. Starbucks Corp. shares SBUX jumped 9.5% after the company's earnings beat estimates and as people continued to spend on pricier coffees. PayPal Holding Inc. shares PYPL gained 6.6% after Wall Street heard from the company's new CEO, Alex Chriss, as it delivered quarterly results.Shares of Palantir Technologies Inc. PLTR were 20.4% higher.Tesla Inc. shares TSLA rose 6.3%.Peloton Interactive Inc. shares PTON turned higher, jumping 12.9%, despite the maker of connected exercise equipment delivering a downbeat outlook for the holiday period.Eli Lilly & Co. shares LLY rose 4.7% on Thursday after the drugmaker reported a surprise third-quarter profit and strong sales growth, boosted by diabetes drug Mounjaro.

Steve Goldstein contributed.

-Joy Wiltermuth -Joseph Adinolfi

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11-02-23 1632ET

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