S&P 500 bounces 2.4% after sharp weekly decline

US stocks gained on Tuesday, leading the S&P 500 index to its best day since late May, as traders hunted for bargains following a steep weekly decline for global shares fuelled by central banks raising interest rates.

The S&P 500 closed 2.4 per cent higher in the New York session as trading resumed after a holiday on Monday, while the technology-focused Nasdaq Composite rose 2.5 per cent. The energy and consumer sectors were among the biggest risers on the S&P.

The moves reversed a portion of the losses inflicted on equities markets in recent weeks. The blue-chip S&P 500 remains down by more than a fifth from its January peak, leaving it in a bear market, as investors fret that higher rates will slow down the economy.

In Europe, the regional Stoxx 600 index added 0.4 per cent, extending gains from the previous session, but it remains about 16 per cent lower for the year.

“We were overdue a bear market rally, as being down for 10 out of 11 weeks is a bit extreme,” said Hani Redha, multi-asset portfolio manager at PineBridge Investments.

“It doesn’t really change the bigger picture of growth slowing down and tightening financial conditions.”

Some analysts also suggested that the bounce on Tuesday may be related to hedge funds covering short positions, after short selling last week reached its highest level since 2008, Bloomberg reported.

“On Friday it looked like some low-profitability tech was the outperformer. Today it is a bit broader, but we’re still seeing that pattern. So I think short covering is a big part of it,” said Tom Graff, head of investments at Facet Wealth.

The FTSE All-World index of developed and emerging market equities fell by the most since March 2020 last week, with a 5.7 per cent decline — its tenth drop in 11 weeks. The S&P fell 5.8 per cent last week.

That came after the Federal Reserve raised its main interest rate by 0.75 percentage points, its biggest such move since 1994. Fed governor Christopher Waller then expressed support for another 0.75 percentage points rise in July, describing the central bank as “all in on re-establishing price stability” after US inflation hit a 40-year high in May.

In government debt markets, the yield on the benchmark 10-year Treasury note, which underpins loan pricing worldwide, added 0.08 percentage points to rise to 3.3 per cent. The policy-sensitive two-year Treasury yield rose 0.02 percentage points to 3.2 per cent.

The Bank of England and the Swiss National Bank also raised interest rates last week, while the European Central Bank has positioned markets for its first rise in more than a decade in July.

The Japanese yen hit a 24-year low of ¥136.68 against the dollar, pushed down by bets that the Bank of Japan will remain reluctant to follow other significant rate-setters into lifting borrowing costs.

Money markets predict the Fed will lift its funds rate to about 3.6 per cent by December. A majority of economists surveyed for the Financial Times predict the world’s largest economy tipping into recession next year.

Global purchasing managers’ surveys will on Thursday offer clues about companies’ order volumes and how they are dealing with rising food and fuel costs caused by Russia’s invasion of Ukraine, and supply chain glitches exacerbated by China’s coronavirus lockdowns.

In Asia, a FTSE index of Asian stocks outside Japan added 1.7 per cent while the Topix in Tokyo closed 2.1 per cent higher.

Elsewhere, the euro added 0.2 per cent, to $1.053, after ECB president Christine Lagarde pledged to safeguard weaker eurozone nations from surging borrowing costs.