First published at 5:55AM EST
Stocks rebounded in Wednesday’s trading session as U.S. treasury yields fell from multi-year highs and the British pound stabilized after a tailspin.
The Dow Jones Industrial Average (DJIA) finished up 1.88%, while the S&P 500 (SPX) and the Nasdaq 100 (NDX) both gained 1.97%. The technology sector (XLK) was the session laggard, as it gained 1.06%. Conversely, the energy sector (XLE) was the session’s leader, with an increase of 4.43%.
Meanwhile, oil continued to remain volatile, as WTI crude closed at $82.15, a gain of 4.7%.
Major News of the Day
Shares of Biogen surged in trading on Wednesday following positive Phase 3 trial results.
The news of the tech giant, Apple deciding to curb the production of its new iPhone 14 caused a ripple in the market.
In other news, shares of psychedelic company MindMed continued to tank after it announced a public offering.
U.S. Bond Yields Waver as the U.K. Plans to Buy LT Bonds
In the bond market, the 10-year Treasury yield finally dropped to 3.73% after topping 4% briefly to a 12-year high. In an attempt to calm the currency crisis in the U.K., the Bank of England expressed its plan to buy long-dated bonds and temporarily keep its balance-sheet shrinking plan on hold. This news slightly cooled the 10-year bond yields in the U.S. as well.
This caused the futures market to price in a higher chance of a lower Fed Funds rate for the end of the year. In fact, the market’s expectations for a rate in the range of 4% to 4.25% increased to 43%, which is up from yesterday’s expectations of 38.7%. In addition, the market is now also assigning a 50.5% probability to a range of 4.25% to 4.5%. For reference, investors had assigned a 59.7% chance yesterday.
The pound bounced on the news, gaining 1.4% against the dollar.
30-Year Mortgage Rate Continues to Increase
On Wednesday, the Mortgage Bankers Association released its weekly report for the U.S. 30-Year mortgage rate. The mortgage rate increased to 6.52% compared to last week’s reading of 6.25%.
Due to the higher rates, the number of mortgage applications decreased week-over-week by -3.7%, following last week’s increase of 3.8%. This indicates that sentiment in the real estate market is falling, which is consistent with other data that has been released so far.
In addition, mortgage application volume is down substantially on a year-over-year basis, with the Mortgage Market Index at 254.8 compared to 734.9 on September 29, 2021.
Stock Market Continues Being Volatile
Technical metrics indicate that the stock market is oversold. However, experts are expecting more selling as investors realize the possibility of a weak earnings season, and gauge further interest rate hikes from the Federal Reserve.
Notably, the Fed’s unidirectional focus on reducing inflation is concerning investors, who are increasingly indulging in emotional investing. This explains why some sectors are seeing more severe sell-offs compared with others.
The Fed is ready to risk a job market downturn and an overall recession if that is what it takes to reduce inflation to desirable levels.
Several Fed governors are scheduled to speak at various events, and investors are keeping an eye on them. However, there is very little chance that the Fed will be changing its stance until interest rates reach at least 4.4% by the end of this year.
