Topline
The stock market rallied Monday as investors backed off their most dire recession fears as the typically auspicious fourth quarter kicked off trading, with the Dow Jones Industrial Average posting its second-best day of 2022.
Investors are hopeful a strong fourth quarter can help correct an otherwise dreadful year for the … [+]
Key Facts
The Dow rose 2.7%, or 760 points—its second-largest increase of the year on a percentage basis —while the S&P 500 gained 2.6% and the tech-heavy Nasdaq jumped 2.3%.
The rally comes after all three indices posted their worst September in more than a decade and the S&P declined for the third straight quarter for the first time since 2009.
Mark Haefele, UBS’ chief investment officer, pointed out the more positive sentiment the fourth quarter brings in a Monday note to clients, and for good reason; on average, the S&P has risen 4.8% over the last three months of the year since 1988.
Investors responded positively to the Federal Reserve beginning to move to an “incrementally dovish” attitude on interest rate hikes over the weekend, Mark Hackett, Nationwide’s head of investment research said Monday, as “growth concerns and stress in the market began to outweigh inflation worries.”
Bond markets recovered Monday, with 10-year U.S. treasury yields falling 14 basis points to 3.7%, down about 35 basis points from last week’s decade high, and 10-year British gilt yields falling 13 basis points after the British government backed off its most aggressive financial policy changes that sent markets into a tizzy.
Among the biggest risers Monday were energy stocks Exxon, Shell and Chevron, each rising about 5%, as crude oil prices spiked following reports that OPEC+ is mulling massive production cuts, while the most notable faller was Tesla, which fell 9% to $242.37 after its quarterly vehicle deliveries fell short of estimates.
Contra
Not all analysts proved optimistic Monday: Goldman Sachs said Monday it projects the S&P to close 2022 at 3,600, a 1.3% decline from where it stands now, while Bank of America forecasted a dip to 3,333 by year-end for the index, an 8.7% drop.
Key Background
The market’s tendency to overperform in the final quarter is buoyed by the so-called Santa Claus rally, a trend where stocks rise in the last five trading days of the year and first two trading days of the new year. It would take a dramatic recovery to reverse a brutal year for the Dow, S&P and Nasdaq, all of which are down more than 20% year-to-date and are on pace for their worst year since 2008. Stocks rallied between June and August, with the Dow rising nearly 15% between mid-June and mid-August, before falling back to 2022 lows last month.
Tangent
Worries about Swiss bank Credit Suisse’s potential capital issues spooked some over the weekend, invoking unfortunate memories of the effect Lehman Brothers’ bankruptcy had on the 2008 financial crisis. However, Citgroup analyst Andrew Coombs wrote in a Monday note he’s ”wary of drawing parallels with banks in 2008,” affirming “this is not 2008.”
Further Reading
The Remarkable History Of 4th Quarters In The Stock Market (Forbes)
Recession Watch: Economic Outlook ‘Darkening’ As Experts Worry Fed Could ‘Break’ Markets (Forbes)
Dow Closes Worst September In 20 Years, Stocks Plunge As Bear Market Roars (Forbes)
Credit Suisse Shares Tank As Capital Concerns Spark Reminders Of Lehman Brothers Failure: Here’s What We Know (Forbes)
Tesla’s Quarterly EV Deliveries Jump 42%–But Miss Bullish Expectations (Forbes)
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