Stocks see upbeat start to the week as Wall Street's fear gauge subsides

By Christine Idzelis

Junk-bond ETFs also rally, while rates and gold prices retreat

U.S. stocks have kicked off this week with a rally, as Wall Street's fear gauge is dropping after shooting higher earlier this month as interest rates rose and tensions in the Middle East intensified.

The "market rebound continues," said Louis Navellier, chief investment officer at Navellier, in emailed comments Tuesday. The recovery is broad, with "softer interest rates and a lower VIX."

The Cboe Volatility Index, which trades under the ticker symbol VIX VIX, fell more than 7% on Tuesday to 15.69, according to FactSet data. That's after the measure, often referred to as the stock market's fear gauge, tumbled 9.5% on Monday.

"The market's recovery this week now looks more driven by an easing of geopolitical risks than any major changes in economic expectations, and should support the motivation to buy the dip by the trillions still sitting in money-market accounts," said Navellier. "That said, we've had some rough trading in names following earnings results."

The S&P 500 SPX closed sharply higher Tuesday, booking back-to-back gains as Treasury rates retreated. The U.S. equities benchmark climbed 1.2% to book its biggest daily increase since Feb. 22 - but it's still down 3.5% this month, according to Dow Jones Market Data .

Risky bonds rally

Beyond investors buying April's dip in U.S. equities, riskier assets in the bond market are also up so far this week.

Exchange-traded funds that buy high-yield corporate bonds, also known as junk for their below-investment-grade ratings, ended Tuesday with gains.

Shares of the iShares iBoxx $ High Yield Corporate Bond ETF HYG and SPDR Bloomberg High Yield Bond ETF JNK each climbed 0.4% on Tuesday, increasing their climb this week to almost 1%, according to FactSet data.

Meanwhile, the yield on the 10-year Treasury note BX:TMUBMUSD10Y declined 2.5 basis points Tuesday to 4.597%, based on levels at 3 p.m. Eastern, but it remains up so far this month, according to Dow Jones Market Data. Bond yields and prices move in opposite directions.

The U.S equities market sold off earlier in April, as Treasury yields surged amid Wall Street worries that the Federal Reserve may keep its benchmark rate elevated for longer than anticipated after its progress on lowering inflation stalled. The Fed will hold a two-day meeting next week, with its decision on interest rates scheduled to be released on May 1.

Gold, dollar decline

Meanwhile, gold (GC00) and the U.S. dollar DXY, which are viewed as haven assets sought by investors in times of tumult, were down Tuesday after climbing earlier this month.

Weakness in gold this week is partly due to "diminished risk of an outright war between Israel and Iran, which therefore reduced the haven appeal of gold somewhat," said Fawad Razaqzada, market analyst at City Index and FOREX.com, in emailed commentary.

Gold fell Tuesday for a second straight session, with the June contract (GCM24) losing 0.2% to settle at $2,342.10 an ounce on Comex. The two-day percentage loss was the biggest since Feb. 3, 2023, according to Dow Jones Market Data.

The ICE U.S. Dollar index DXY, which measures the greenback against six other major currencies, weakened modestly Tuesday, after strengthening in the past two weeks, according to FactSet data.

Falling rates helped push the U.S. dollar index lower, according to Navellier.

Oil risks remain

While Wall Street's fear gauge subsided again Tuesday, investors continue to watch the Middle East for any signs of a widening conflict.

Oil (CL00) had started off this week with a drop on Monday as geopolitical tensions appeared to ease, but crude prices ended higher Tuesday as risks to supplies in the oil-rich region remain. The June contract for West Texas Intermediate crude (CLM24) (CL.1) climbed 1.8% on Tuesday to settle at $83.36 a barrel on the New York Mercantile Exchange.

In a research note Monday, market analysts at JPMorgan Chase & Co. cautioned that after Iran's attack on Israel, "we believe there is complacency regarding geopolitics again after oil's pullback." They also said that the recent rallies in "base and precious metals prices have further to run in 2024, as geopolitics remain a bullish-skewed wildcard."

Myra P. Saefong contributed to this article.

-Christine Idzelis

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04-23-24 1807ET

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