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Stocks Push to New Session Highs, Yields Slip: Markets Soar

(Bloomberg) – U.S. stocks rallied amid renewed risk sentiment with falling Treasury yields and a tumbling dollar as Americans vote in the midterm elections.

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The S&P 500 extended its gains into a third day. The tech-heavy Nasdaq 100 and blue-chip Dow Industrial Average outperformed, rising more than 1%. The yield on two-year Treasuries, more sensitive to changes in Federal Reserve policy, lost 5 basis points, while the dollar fell against most of its major counterparts.

The track record of strong performance following the mid-term results has helped bolster optimism about the outlook for equity markets. While polls suggest Republicans could make gains, putting a damper on Democratic policies, there are several scenarios. The best outcome for the Treasuries could be Republican control of the House of Representatives and the Senate, while the dollar could find support if the Democrats retain both houses.

Learn more about the elections:

Most recent election: polls are open with Senate control up for grabs

Deeply divided America votes amid inflation fears and culture wars

Here are the key races to watch hour by hour as the midterm vote ends

Still, for many, the biggest headwind for markets is Fed monetary tightening with Thursday’s Consumer Price Index data the next event likely to come on the heels of higher prices at consumer staples more than expected to hit a 40-year high in September. Even though prices are starting to moderate, the CPI is well above the Fed’s comfort zone.

Going forward, however, there could be a silver lining in the stalemate for policymakers, according to Art Hogan, chief market strategist at B. Riley Wealth.

“A divided government, especially leading up to a presidential election, will most likely create a stalemate where very little is done,” Hogan wrote. “That’s probably a good thing for the Fed because various stimuli haven’t made its job any easier.”

Treasuries rallied across the board on Tuesday, with the benchmark 10-year rate falling as much as 7 basis points. Meanwhile, traders reduced their bets on rate hikes, with swap markets still leaning towards a 50 basis point Fed rate hike in December. More notable moves have occurred further out, with the peak reaching just above 5% in the first half of 2023.

Nvidia Corp. climbed by starting to produce a processor for China. Take-Two Interactive Software Inc. fell after cutting its net bookings forecast.

The European Stoxx 600 rallied after a weak opening. Chinese stocks halted a rally as traders eyed a rise in virus infections and official comments defending Covid Zero.

Key events this week:

  • US midterm elections, Tuesday

  • EIA Petroleum Inventory Report, Wednesday

  • China Overall Financing, PPI, CPI, Money Supply, New Yuan Lending, Wednesday

  • U.S. Wholesale Stocks, MBA Mortgage Applications, Wednesday

  • Fed officials John Williams and Tom Barkin speak at events on Wednesday

  • US CPI, US initial jobless claims, Thursday

  • Fed officials Lorie Logan, Esther George and Loretta Mester speak at events on Thursday

  • American University of Michigan Consumer Sentiment Friday

Some of the major movements in the markets:

Shares

  • The S&P 500 rose 0.9% at 11:10 a.m. PT

  • The Nasdaq 100 rose 1.2%

  • The Dow Jones Industrial Average rose 1.2%

  • The Stoxx Europe 600 rose 0.7%

  • The MSCI World index rose 1.1%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.5%

  • The euro rose 0.5% to $1.0073

  • The British pound rose 0.4% to hit $1.1565

  • The Japanese yen rose 0.9% to 145.36 per dollar

Cryptocurrencies

  • Bitcoin fell 3.1% to $20,048.55

  • Ether fell 3.3% to $1,523.81

Obligations

  • The yield on 10-year Treasury bills fell six basis points to 4.15%

  • Germany’s 10-year yield fell seven basis points to 2.27%

  • The UK 10-year yield fell seven basis points to 3.57%

Goods

  • West Texas Intermediate crude fell 0.4% to $91.46 a barrel

  • Gold futures rose 2.2% to $1,717.10 an ounce

–With help from Jan-Patrick Barnert, Haidi Lun, Brett Miller, Srinivasan Sivabalan and Emily Graffeo.

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