Stocks Recover from Monday’s Nosedive…..

U.S. equities rallied for a second-straight session to bounce back from Monday’s plunge, as debt contagion concerns out of China moderated further, while the markets appeared to remain upbeat regarding yesterday’s Fed monetary policy decision. Although the Fed left its interest rate policy unchanged, it hinted that tapering of asset purchases could begin soon if the economy continues to progress broadly as expected. Investors also sifted through a host of September manufacturing and services reports that showed growth in the U.S., Eurozone and the U.K. slowed, but remained comfortably in expansion territory. Moreover, U.S. Leading Indicators accelerated and posted a sixth-straight monthly gain, but the moderation in jobless claims reversed for a second consecutive week. Treasuries fell, providing a boost to yields, and the U.S. dollar was lower amid a rally in European currencies after the Bank of England suggested it may be moving closer to tightening policy, in the wake of the European Central Bank’s announcement earlier this month to recalibrate its asset purchases. Crude oil prices rose and gold was sharply lower. In equity news, Dow member Salesforce raised its guidance and Darden Restaurants posted stronger-than-expected Q1 results. Europe finished mostly higher following the Fed and Bank of England decisions, while markets in Asia were mixed amid lingering Chinese debt issues.

The Dow Jones Industrial Average jumped 507 points (1.5%) to 34,765, the S&P 500 Index rose 53 points (1.2%) to 4,449, and the Nasdaq Composite advanced 155 points (1.0%) to 15,052. In moderate volume, 796 million shares were traded on the NYSE and 4.1 billion shares changed hands on the Nasdaq. WTI crude oil increased $1.07 at $73.30 per barrel. Elsewhere, the gold spot price dropped $30.70 to $1,748.10 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.4% to 93.06.

Weekly initial jobless claims came in at a level of 351,000 for the week ended September 18, versus the Bloomberg estimate of 320,000 and compared to the prior week’s upwardly-revised 335,000 level. The four-week moving average dipped by 750 to 335,750, and continuing claims for the week ended September 11 rose by 131,000 to 2,845,000, well above estimates of 2,600,000. The four-week moving average of continuing claims declined by 15,750 to 2,804,000.

The preliminary Markit U.S. Manufacturing PMI Index for September declined to 60.5 from August’s unrevised 61.1 figure but remained solidly in expansion territory as denoted by a reading above 50. Estimates called for the index to dip to 61.0. The preliminary Markit U.S. Services PMI Index showed growth (above 50) for the key U.S. sector also decelerated more than expected, declining to 54.4 from August’s 55.1 figure, and compared to forecasts of a dip to 54.9.

When looking at the composite index of output from both sectors, Markit said, “Private sector firms in the U.S. signaled a solid expansion in output during September, albeit at the slowest pace for a year and one that was much softer than that seen at the start of the summer. The overall upturn was weighed on by the weakest increase in service sector business activity in the current 14-month sequence of growth.” Markit noted that ongoing virus restrictions continued to impede activity, adding that challenges finding suitable candidates and difficulties retaining employees hamstrung employment, and the rate of cost inflation was the quickest for four months due to supply chain disruptions and material shortages.

The Conference Board’s Index of Leading Economic Indicators (LEI) for August rose 0.9% month-over-month (m/m), above estimates calling for a 0.7% gain and July’s downwardly-revised 0.8% increase. The LEI was positive for the sixth-straight month due mostly to positive net contributions from ISM new orders, jobless claims, building permits, credit, and interest rate spread, which more than offset a negative contribution from consumer expectations.

The September Kansas City Fed Manufacturing Activity Index fell more than expected but remained comfortably at a level depicting expansion (a reading above zero). The index decreased to 22 from August’s 29 reading, and compared to forecasts calling for a decline to 25.

Treasuries were lower after the yield curve flattened yesterday following the Fed’s decision, as the yield on the 2-year note ticked 2 basis points (bps) higher to 0.26%, the yield on the 10-year note rose 11 bps to 1.41%, and the 30-year bond rate gained 12 bps to 1.92%.

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