(Bloomberg) -- U.S. stocks ended a volatile month with the biggest two-day rally since 2020, with beaten-down tech shares powering a late rebound.
The S&P 500 rallied almost 2% for its best back-to-back performance since April 2020, paring a monthly loss that at one point exceeded 10% to 5.3% -- still the worst drop since the pandemic bear market. The Nasdaq 100's rebound was even sturdier, a 6.6% surge in two sessions. Its members took such a walloping for most of the month that it still ended down 8.5%, the worst since December 2018.
The huge month-end rallies continued a trend of volatility that has gripped markets since the Federal Reserve signaled earlier in the month its intention to tamp down inflation that had swelled to the fastest since the early 1980s. In one session, the Nasdaq 100 erased a loss of almost 5%, while the S&P 500 staged three straight days with swings that topped 3%. Treasuries similarly endured violent swings, with yields on two-year notes spiking 13 points last week when Jerome Powell reiterated an intention to use all tools to mute price gains.
“Until the market and the Fed stop leapfrogging each other in terms of interest rate expectations, the market will stay volatile,” wrote Deutsche Bank strategist Jim Reid, adding he wouldn't be surprised by a swing in late trading.
The wild moves weren't limited to stocks and bonds. Oil had its biggest January gain in at least 30 years as robust demand outpaced fresh supply. The global benchmark settled above $91 a barrel, posting a 17% gain this month. Spot gold ended the month down almost 2% and copper slid.
Some of the month's worst performers ended with major advances. Cathie Wood's flagship Ark Innovation fund surged 9.5% for the biggest advance since March, while a Goldman Sachs Group Inc. basket of profitless tech companies rallied 10%. The Renaissance IPO ETF gained almost 8%. Tesla Inc. and Netflix Inc. each added 11%.
Part of the recent gains in tech stocks could be explained by short covering with traders buying back shares of the richly-valued companies they previously bet against.
Short interest as a percentage of float for constituents in the index reached a roughly nine-month high earlier this month, according to a note from Wells Fargo. That “provides fuel for a short covering rally,” said Christopher Harvey, head of the bank's equity strategy.
There remains speculation over whether the fed funds rate might increase 25 or 50 basis points at the start of the Fed's tightening cycle. Yet, Michael O'Rourke, chief market strategist at Jonestrading Institutional Services, said it didn't matter.
“Debating between 25 and 50 basis point for March is the equivalent to deciding between using a cup or a bucket to start emptying a swimming pool. One is larger than the other, but the difference is negligible relative to the task,” he said.
Next up, a flurry of companies from Alphabet Inc. to Exxon Mobil Corp. are expected to report financial results this week, potentially adding to future volatility.
So far this quarter the stellar run of corporate profitability has continued. Of the 172 S&P 500 companies that have posted results so far, 81% have met or exceeded expectations, and profits have come in about 5% above the levels predicted.
“Equities are right now in a tug-of-war between better economy, better fundamentals and tighter money supply,” Troy Gayeski, chief market strategist at FS Investments, said by phone.
“You're going to have to deal with market angst but the good news is the economy is on very firm footing and it would take another major exogenous shock, like a pandemic, or some type of major geopolitical situation” to really disrupt the economy and cause a recession, he added.
The MSCI World Index ended January with its worst monthly performance since March 2020. Bitcoin traded around $38,400, paring back a drop of almost 20% since the start of 2022.
For more market analysis, read our MLIV blog.
What to watch this week:
- Earnings are due from Alphabet, Amazon, Exxon Mobil, Ford Motor, Meta Platforms, Qualcomm, Sony, Spotify, UBS Group
- Reserve Bank of Australia rate decision, Tuesday
- Manufacturing PMIs, including euro zone, Tuesday
- OPEC+ meeting on output, Wednesday
- Euro zone CPI, Wednesday
- Bank of England, European Central Bank rate decisions, Thursday
- Fed Board of Governors confirmation hearing, Thursday
- U.S. factory orders, initial jobless claims, durable goods, Thursday
- U.S. payrolls report for January, Friday
- Winter Olympics kick off in China, Russia's President Vladimir Putin due to attend opening ceremony, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 1.9% as of 4:01 p.m. New York time
- The Nasdaq 100 rose 3.3%
- The Dow Jones Industrial Average rose 1.2%
- The MSCI World index rose 1.8%
Currencies
- The Bloomberg Dollar Spot Index fell 0.6%
- The euro rose 0.7% to $1.1233
- The British pound rose 0.3% to $1.3447
- The Japanese yen rose 0.2% to 115.07 per dollar
Bonds
- The yield on 10-year Treasuries advanced one basis point to 1.78%
- Germany's 10-year yield advanced six basis points to 0.01%
- Britain's 10-year yield advanced six basis points to 1.30%
Commodities
- West Texas Intermediate crude rose 1.7% to $88.33 a barrel
- Gold futures rose 0.7% to $1,799.40 an ounce
©2022 Bloomberg L.P.
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