Wall Street rises on hopes of less-aggressive Fed as business activity shrinks

NEW YORK: US stock indexes climbed on Monday as shrinking business activity lifted hopes of a less aggressive approach by the Federal Reserve, even though the gains on the Nasdaq were capped by a slump in Tesla and some Chinese firms.

In the latest evidence of an economy softening in the face of high inflation and rising interest rates, a survey showed manufacturers and service firms reporting weaker client demand in October.

Wall Street’s main indexes had rallied on Friday after a report said the Fed will likely debate on a smaller interest rate hike in December and comments from policymakers indicated the central bank is weighing how higher it can push the borrowing costs.

“The Fed meeting (in November) could be a positive inflection because it will indicate at least some members are re-thinking their ultra-hawkish stance,” said Jay Hatfield, chief executive officer, Infrastructure Capital Management.

Meanwhile, Tesla Inc dropped 4.3% after it cut starter prices for its Model 3 and Model Y cars by as much as 9% in China, indicating signs of softening demand in the world’s largest auto market.

US-listed shares of Chinese companies such as Pinduoduo , JD.com and Baidu Inc fell between 14% and 27% as President Xi Jinping secured a precedent-breaking third leadership term and introduced the new Politburo Standing Committee stacked with loyalists.

“The issue with that is China seems to be going more towards third authoritarian regime which is bad for growth. Xi is consolidating his power, which indicates that his policy of more extreme communism is likely to continue,” Hatfield said.

The benchmark S&P 500 is up nearly 6% from its Oct. 12 closing low for the year. Despite the recent rebound, it is down 21% so far in 2022 and on track for its biggest decline since 2008.

The indexes notched their biggest weekly percentage gains in four months on Friday, also supported by better-than-expected earnings reports.

On tap later this week are earnings from big technology companies, including Google-parent Alphabet, Microsoft Corp, Amazon.com and Apple Inc, which could test the nascent rally on Wall Street.

“The bar for success for mega cap tech companies is relatively low. The reaction function to the actual earnings will likely be positive,” said Art Hogan, chief market strategist at B. Riley Wealth in New York.

“The reporting season really gives investors the opportunity to shift their focus on the actual earnings power of corporate America, and that’s why we’re popping a little bit.” Of the 99 companies in the S&P 500 that reported third-quarter earnings through Friday, 74.7% had beat analysts’ expectations, according to Refinitiv estimates. The long-term average is 66.2%.

At 12:37 ET, the Dow Jones Industrial Average was up 366.01 points, or 1.18%, at 31,448.57, the S&P 500 was up 36.59 points, or 0.98%, at 3,789.34, and the Nasdaq Composite was up 45.59 points, or 0.42%, at 10,905.31.

Shares of 3M and Coca-Cola and Boeing, which are also reporting earnings this week rose between 0.5% and 3%.

Among S&P 500 sectors, healthcare was up 2.1% and in the lead, followed by industrials and consumer staples.

The S&P index recorded 21 new 52-week highs and four new lows, while the Nasdaq recorded 56 new highs and 276 new lows.