Dow jumps 300 points, Nasdaq up 1% as investors weigh Fed’s next rate move

Citi's Kristen Bitterly: Recent stock market rally will only force the Fed to step up its hawkish rhetoric

Stocks rose on Monday as investors priced in a possible slowdown in the Federal Reserve’s pace of rate hikes and braced for a busy week of earnings reports.

The Dow Jones Industrial Average rose 260 points, or 0.8%, while the S&P 500 gained 1.3%. The Nasdaq Composite rose 2%.

Semiconductor stocks rose, along with shares of Tesla and Apple, on hopes the reopening of China would boost their businesses. Both tech giants have recently grappled with temporary shutdowns and production hits as the country grapples with surging Covid-19 cases.

Investors have begun to weigh the possibility that the Federal Reserve is preparing to slow the pace of its anti-inflation rate hikes after months of aggressive tightening. Economic data last week showing a drop in wholesale prices and retail sales, combined with comments from central bank officials, appeared to point to a slowdown.

Investors’ hopes for a rate cut were boosted by comments on Friday from Federal Reserve Governor Christopher Waller that appeared to favor a quarter-point rate hike at its next meeting. A Wall Street Journal report on Sunday raised the possibility of a spring pause in rate hikes — suggesting the Fed may be nearing the end of its campaign.

“The bulls are running on near-term momentum and ‘soft landing’ narratives, and are hard-pressed to argue with recent price action,” Jonathan Krinsky, BTIG’s chief market technician, wrote in a note Monday. “On the other hand, the long-term trend Still somewhat bearish, we’re always skeptical of this kind of widely watched ‘breakout’, especially after a big rally.”

Markets are pricing in a 99.7% chance of a 25 basis point hike, which would bring rates into a target range of 4.5% to 4.75%, according to CME Group.

Earnings reports are likely to keep markets on edge, with about 40 percent of Dow components scheduled to release their latest financial results and offer more insight into how companies are coping with inflation and interest rates. Some of the big names on the deck include Microsoft, IBM, Tesla, Visa and Mastercard.

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