Stocks rose sharply again on Tuesday, extending gains from the previous day and rebounding from a painful decline in September, as some investors bet that the rapid pace of interest rate increases that have raised costs for companies may soon begin to moderate.
The S&P 500 rose 3.1 percent on Tuesday, its largest one-day gain since May 2020 and the early recovery from the market turmoil induced by the coronavirus pandemic. The gain added to a rise of 2.6 percent on Monday.
Some investors are beginning to anticipate that with some signs of inflation easing and economic growth slowing, a peak in interest rates may come sooner than anticipated. Such an outcome would provide relief for companies that are expected to report a drop in quarterly earnings in their latest batch of reports, which they will begin to release this month.
However, the view that inflation and interest rates have peaked has been undermined before, and rallies like this weeks have been short-lived. The last time the S&P 500 posted two consecutive days of gains in excess of 2.5 percent each was in December 2008. The index fell a further 25 percent from then before hitting its low in March 2009.
“With sentiment toward equities already very weak, periodic rebounds are to be expected,” said Mark Haefele, the chief investment officer at UBS Global Wealth Management. “But markets are likely to stay volatile in the near term, driven primarily by expectations around inflation and policy rates.”
Nevertheless, investors have been looking for indications that the Federal Reserve could let up its campaign to raise interest rates. A government report on Tuesday offered hope, showing a larger-than-expected decline in job openings in August, although hiring, quitting and layoffs remained steady.
Signs of a slowing labor market would reinforce the view that inflation could more consistently fall in the coming months, removing pressure on the Fed to tighten its policy so aggressively. Amazon is freezing corporate hiring in its retail business, according to a company memo, a division where about 20,000 job openings were recently posted. Facebook’s parent, Meta, told employees last week that it would freeze hiring and reduce budgets across most of its teams.
Tuesday’s rally was driven by a rise in the stock prices of companies that suffered the most through the pandemic-induced slowdown and, curtailed by higher inflation and interest rates, have yet to fully benefit from the economic recovery that came from the loosening of Covid restrictions. The cruise operator Royal Caribbean rose more than 16 percent and the casino company Caesars Entertainment gained more than 11 percent. The airlines Delta and American both rose more than 8 percent.
Twitter jumped more than 22 percent after Elon Musk proposed going ahead with a deal to acquire the company at the price originally agreed, potentially ending the legal fight over whether the billionaire could pull out of the agreement struck nearly six months ago.