Wall Street rallies after Bank of America results, UK reversal

US stocks kicked off the trading week on Monday with a rally after Britain reversed course on an economic plan while Bank of America Corp (BOA) was the latest financial company to post solid quarterly results which lifted optimism about the corporate earnings season.

The Dow Jones Industrial Average rose 550.99 points or 1.86% to 30,185.82, the S&P 500 gained 94.88 points or 2.65% to 3,677.95 and the Nasdaq Composite added 354.41 points or 3.43% to 10,675.80.

Britain named Jeremy Hunt finance minister, and he immediately dispelled many of Prime Minister Liz Truss’ fiscal measures which had unnerved markets in recent weeks.

BOA shares surged 6.06% as the lender’s net interest income was buoyed by rising interest rates in the quarter even though it added US$378 miln to its loan-loss reserves to buttress against a softening economy.

Fellow financial Bank of NY Mellon Corp also benefited from higher interest rates with its shares climbing 5.08%.

Overall, higher rates boosted interest incomes for lenders in the third quarter, giving investors hope the current earnings season will be able to hurdle a lowered bar of expectations. The earnings growth estimate for the quarter is 3%, according to Refinitiv data, down from 4.5% at the start of the month and 11.1% on July 1.

“There is better sentiment around what is happening in the UK, financials earnings are being supported by a number of factors, better net interest margins are one key element, higher rates are going to be good for the banks so Q3 earnings maybe are looking a little less bad than feared, I would put it, maybe not necessarily better than feared.”

The S&P 500 banks index was up 3.48% while each of the 11 major S&P 500 sector were higher.

US equities remain mired in a bear market after struggling through September, historically a tough month. Analysts said to better stock valuations entering what is traditionally a stronger period for stocks were also supporting Monday’s rally. Aggressive US Federal Reserve interest rate hikes could be a stumbling block though.

“Right now the Fed owns the market, Fed policy is the key driver, they are implementing the most aggressive tightening in the shortest amount of time that we have seen in our generation and it is important to remember that Fed policy, it works with a lag,” said Roland.

Data on manufacturing in the New York region was weaker than expected, adding fuel to expectations a pivot by the Fed may be on the horizon.

Shares of Goldman Sachs which will post results on Tuesday advanced 2.24% following reports of a plan to combine its investment banking and trading businesses.

Major megacap growth stocks like Apple Inc, Meta Platforms Inc, Amazon.com and Tesla Inc all rallied, helping to lift the S&P 500 growth index by 3.42%, its biggest daily percentage jump since July 27.

Tesla, Netflix and Johnson & Johnson are among companies expected to report results later in the week.

Volume on US exchanges was 10.65 billion shares compared with the 11.52 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 4.79-to-1 ratio; on Nasdaq, a 2.98-to-1 ratio favoured advancers.

The S&P 500 posted no new 52-week highs and two new lows; the Nasdaq Composite recorded 83 new highs and 146 new lows. – Oct 18, 2022


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