IGI Logo

BOSTON/LONDON - U.S. stocks regained ground on Tuesday, while Treasury yields climbed higher and oil dipped, as investors adjusted their expectations for rate hikes following hawkish comments from the U.S. Federal Reserve.

The Dow Jones Industrial Average rose 281.07 points, or 0.81%, to 34,834.06; the S&P 500 gained 27.59 points, or 0.62%, to 4,488.77; and the Nasdaq Composite added 87.88 points, or 0.64%, to 13,926.34.

Stocks gaining included banks potentially benefiting from higher interest rates such as Morgan Stanley and Wells Fargo & Co, and sports apparel giant Nike Inc, which advanced around 5.5% after it beat quarterly profit and revenue expectations.

Fed Chair Jerome Powell said on Monday the central bank could move "more aggressively" to raise rates to fight inflation, possibly by more than 25 basis points (bps) at once.

Markets were recalibrating the higher possibility of a 50-bps hike. On Tuesday morning, money markets were pricing in an 80% chance of a 50-bps hike in May, although this dipped to 70% around midday.

At around 1345 GMT, the U.S. 10-year Treasury yield was at 2.366%, having hit its highest since 2019.

RBC Capital Markets' chief U.S. economist Tom Porcelli wrote in a note to clients that during the speech "it was easy to wonder if a 75bps hike or even going intra-meeting is possible."

"Both outcomes seem incredibly extreme but when we hear Powell talk about inflation he comes off as incredibly anxious to us."

Euro zone government bond yields also rose, with Germany's benchmark 10-year yield hitting around 0.515%, its highest level since 2018.

Although Wall Street had closed lower on Monday after Powell's comments, stock markets in Europe rose. The STOXX 600 was up 0.65%, having climbed high in recent sessions to reach a one-month high. London's FTSE 100 was up 0.54%.

The MSCI world equity index, which tracks shares in 50 countries, was up 0.63% on the day.

Matthias Scheiber, global head of multiasset portfolio management at Allspring Global Investments, said the pickup in stocks could be a case of investors buying the dip, but that growth stocks would struggle if the U.S. 10-year yield moves closer to 2.5%.

"We saw the sharp rise in yields yesterday and we see that continuing today on the long end, so that’s likely to put pressure on equities. ... It will be hard for equities to have a positive performance."

But JPMorgan said that 80% of its clients plan to increase equity exposure, which is a record high.

"With positioning light, sentiment weak and geopolitical risks likely to ease over time, we believe risks are skewed to the upside," wrote JPMorgan strategists in a note to clients.

"We believe investors should add risk in areas that overshot on the downside such as innovation, tech, biotech, EM/China, and small caps. These segments are pricing in a severe global recession, which will not materialize, in our view."

The conflict in Ukraine continued to weigh on sentiment. U.S. President Joe Biden issue one of his strongest warnings yet that Russia is considering using chemical weapons.

Oil prices lost some ground gained Monday following news that some European Union members were considering imposing sanctions on Russian oil - although Germany said the bloc was too dependent on Russian oil and gas to be able to cut itself off.

U.S. crude fell 1.08% to $110.91 per barrel and Brent was at $115.53, down 0.08% on the day.

The U.S. dollar index was steady at 98.38, while the euro was up 0.2% at $1.103.

Gold prices fell on Tuesday, pressured by the Fed chief's hawkish approach to tackling inflation. Spot gold dropped 0.6% to $1,923.60 an ounce.

Leading cryptocurrency Bitcoin was up 4.3% at around $42,803, adding to its gains since its intraday low of $34,324 on Feb. 24 when Russia invaded Ukraine.