(Bloomberg) -- Stocks climbed toward a seven-week high and bond yields tumbled, with traders dialing back wagers on Federal Reserve rate hikes after an ugly economic reading fueled concern about a US recession.
Defensive shares led S&P 500 gains, while tech underperformed ahead of results from Apple Inc. and Amazon.com Inc. The two-year yield sank as much as 19 basis points and the 10-year rate slid to the lowest since April. Swaps referencing policy meeting dates show bets the fed funds rate will peak around 3.3% before the end of 2022 -- less than 100 basis points above its current level.
The drumbeat of recession grew louder after the economy shrank for a second straight quarter as inflation undercut consumer spending and Fed hikes stymied businesses and housing. The data was released a day after the central bank raised rates by 75 basis points and Chair Jerome Powell said a similar move was possible again -- rejecting speculation the US is in recession.
“Bad news is becoming good news,” said Michael Arone, chief investment strategist at State Street Global Advisors. “When the economy is slowing, inflation measures will likely fall. That will bring the end of the tightening cycle nearer and markets will like that.”
For LPL Financial's Jeffrey Roach, the Fed will likely interpret the drop in real growth as confirmation to slow down the pace of tightening. “Front-loading rate hikes eventually mean smaller hikes in the near future,” he added. FHN Financial's Chris Low said that based on Powell's comments Wednesday, officials will not stop hiking just because the economy is shrinking.
“They need to see real progress against inflation before they stop raising rates,” Low noted. “With that in mind, this recession will get deeper before the economy starts to heal.”
Read: US Slowdown Puts Economy on Path to Ever-More-Likely Recession
Corporate Highlights:
- Honeywell International Inc.'s profit topped estimates as a rebound in air travel and oil-and-gas investment helped spur sales.
- Hertz Global Holdings Inc. soared as the rental-car giant's earnings beat estimates with revenue jumping on higher prices and rebound in travel.
- Harley-Davidson Inc. gained as profit and revenue beat estimates, a sign that a turnaround plan is helping the motorcycle maker overcome supply-chain headaches.
- Comcast Corp. sank after its prized internet business added no new customers last quarter, its worst performance in decades.
- Southwest Airlines Co. said it's facing high costs and delays in aircraft deliveries from Boeing Co., tarnishing a quarter in which the carrier topped Wall Street's profit expectations.
Here are some key events to watch this week:
- Euro-area CPI, Friday
- US PCE deflator, personal income, University of Michigan consumer sentiment, Friday
Musk, Tesla and Twitter are this week's theme of the MLIV Pulse survey. Also share your views on the S&P 500's biggest stocks. Click here to get involved anonymously.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.7% as of 1:11 p.m. New York time
- The Nasdaq 100 rose 0.2%
- The Dow Jones Industrial Average rose 0.8%
- The MSCI World index rose 0.9%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.4% to $1.0163
- The British pound fell 0.1% to $1.2140
- The Japanese yen rose 1.6% to 134.42 per dollar
Bonds
- The yield on 10-year Treasuries declined 10 basis points to 2.68%
- Germany's 10-year yield declined 12 basis points to 0.83%
- Britain's 10-year yield declined nine basis points to 1.87%
Commodities
- West Texas Intermediate crude fell 0.6% to $96.69 a barrel
- Gold futures rose 2% to $1,771.90 an ounce
More stories like this are available on bloomberg.com
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