Economy 12 minutes ago (Oct 17, 2022 04:06PM ET)
© Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., September 7, 2022. REUTERS/Brendan McDermid/File Photo
By Chuck Mikolajczak
NEW YORK (Reuters) – U.S. stocks kicked off the trading week on Monday with a rally after Britain reversed course on an economic plan, while Bank of America was the latest financial company to post solid quarterly results, which lifted optimism about the corporate earnings season.
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.
Bank of America Corp (NYSE:) shares surged as the lender’s net interest income was buoyed by rising interest rates in the quarter, even though it added $378 million to its loan-loss reserves to buttress against a softening economy.
Fellow financial Bank of NY Mellon (NYSE:) Corp also benefited from higher interest rates, and its shares also climbed.
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.
“In a fragile market like this, any type of good news in the margin can go a long way,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management in Boston.
“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 banks index was up more than 3%, while each of the 11 major S&P 500 sector were higher.
According to preliminary data, the S&P 500 gained 95.33 points, or 2.66%, to end at 3,678.40 points, while the Nasdaq Composite gained 355.42 points, or 3.44%, to 10,676.81. The Dow Jones Industrial Average rose 566.35 points, or 1.91%, to 30,201.18.
U.S. 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 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 (NYSE:), which will post results on Tuesday, also advanced following reports of a plan to combine its investment banking and trading businesses.
Major megacap growth stocks like Apple Inc (NASDAQ:), Meta Platforms Inc, Amazon.com (NASDAQ:) and Tesla (NASDAQ:) Inc all rallied, helping to lift the S&P 500 growth index by more than 3%.
Tesla Inc, Netflix (NASDAQ:) and Johnson & Johnson (NYSE:) are also expected to report results later in the week.