The U.S Stock Market Opens Higher as Treasury Yields Plunge

U.S. equities started the trading day on Tuesday with gains, buoyed by a significant decline in Treasury yields and growing optimism that the Federal Reserve might be concluding its series of interest rate hikes.

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Here's how the stock indices are performing:

• The S&P 500 advanced by 9.5 points, equivalent to a 0.2% increase, reaching 4,345.
• The Dow Jones Industrial Average added 68 points, or 0.2%, reaching 33,672.
• The Nasdaq Composite climbed by 30 points, or 0.2%, to 13,514.

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On the preceding Monday, the Dow Jones Industrial Average (DJIA) saw an increase of 197 points, representing a 0.59% gain, reaching 33,605. Similarly, the S&P 500 (SPX) gained 27 points, or 0.63%, reaching 4,336, while the Nasdaq Composite (COMP) recorded an increase of 53 points, equivalent to a 0.39% rise, reaching 13,484.

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The positive momentum observed on Tuesday follows a 0.6% gain in the S&P 500 index on Monday. This gain was driven by a combination of factors, including concerns over ongoing violence in the Middle East and comments from Federal Reserve officials that suggested a recent tightening of credit conditions might reduce the necessity for further interest rate hikes by the central bank.

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Fed Vice Chair Philip Jefferson, speaking on Monday, noted that the central bank could adopt a cautious approach given the recent surge in Treasury yields, which had reached their highest levels in 16 years. Additionally, Dallas Fed President Lorie Logan indicated that the increase in long-term yields might lessen the need for additional hikes in borrowing costs.

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The 10-year Treasury yield (BX:TMUBMUSD10Y), which had remained closed for trading on Monday due to a U.S. national holiday, experienced a substantial 15-basis-point drop early on Tuesday, reaching 4.653%.

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Richard Hunter, Head of Markets at Interactive Investor, highlighted that despite the ongoing developments in the Middle East, investors remained focused on the Federal Reserve's stance on interest rates and its efforts to combat inflation. He added that comments from Fed officials had provided a timely boost, suggesting that the recent surge in Treasury yields, which influence borrowing rates, might alleviate some of the central bank's concerns.

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Quincy Krosby, Chief Global Strategist for LPL Financial, pointed out the significance of Jefferson's remarks, noting that the Fed's Vice Chair typically communicates in alignment with the Fed's Chair, particularly during pivotal policy shifts.

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Market participants on Tuesday were pricing in an 84% probability that the Fed would keep its policy interest rates unchanged following its November meeting, according to the CME FedWatch Tool. The likelihood of a 25-basis-point rate hike in December stood at 15%, down from 28% just a week earlier.

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However, before these events transpire, investors have a slew of economic data and Fed commentary to digest. Key releases include September's producer and consumer inflation figures, scheduled for Wednesday and Thursday, respectively. Additionally, the third-quarter earnings season is commencing this week, starting with major bank earnings on Friday.

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On Tuesday, economic updates include August wholesale inventories at 10 a.m. Eastern and the Federal Reserve Bank of New York's survey of consumer expectations, which includes insights on inflation, at 11 a.m.

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Several Fed officials are also slated to make official appearances and deliver speeches:

• Raphael Bostic, President of the Atlanta Fed, will participate in a moderated conversation starting at 9:30 a.m.
• Fed Gov. Christopher Waller is scheduled to speak at George Mason University at 1 p.m.
• Neel Kashkari, President of the Minneapolis Fed, will appear in Minot, North Dakota, at 3 p.m.
• Mary Daly, President of the San Francisco Fed, is set to participate in a town hall event at 6 p.m.

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Mark Newton, Technical Strategist at Fundstrat, noted that the stock market's recovery from Monday's low was a positive sign. He observed that the S&P 500 had surpassed the critical 4,336 level that had marked previous lows. While he expressed a desire for further confirmation, Newton found Monday's reversal to be constructive in his analysis and anticipated potential upside continuation. He also identified support near 4,300, which he believed would not be immediately tested as this rally likely had further upward momentum.

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