US stock indices rallied on Monday after a sell-off wave triggered by worries expressed by the US central bank and high volatility during the season of corporate earnings reports.
The S&P 500 index rose by 1.4% on the back of recovering stock of consumer and tech companies, while the Nasdaq 100 was up by 2.5%.
Traders were poised for high volatility and wide market swings in the course of a correction, which followed after hawkish comments made by the Fed Chairman on Wednesday. The US dollar weakened against major currencies, and Treasury yields rose on expectations that the Fed would begin a rate hike in March.
"Until the market and the Fed stop leapfrogging each other in terms of interest rate expectations, the market will stay volatile," Deutsche Bank strategist, Jim Reid, wrote in his article.
The Nasdaq 100 has already erased a loss of almost 5% from Thursday as traders were buying back tech stocks they previously went short on.
Short interest as a percentage of the float for constituents in the index reached a roughly nine-month high earlier this month, according to a note from Wells Fargo. That "provides fuel for a short covering rally," Christopher Harvey, head of the bank's equity strategy, said
Speculation remains over whether the funds rate could increase by 25 or 50 basis points as the Fed starts it tightening cycle.
So far, a stellar run of corporate profitability has continued this quarter. Out of 172,500 companies included in the S&P500 that have posted results so far, 81% have met or outpaced expectations, with profits exceeding forecasts by about 5%.
According to Troy Gayeski, chief market strategist at FS Investments, "equities are right now in a tug-of-war between better economy, better fundamentals and tighter money supply." "You're going to have to deal with market angst but the good news is the economy is on very firm footing and it would take another major exogenous shock, like a pandemic, or some type of major geopolitical situation," he added.
What to watch this week:
- earnings reports from Alphabet, Amazon, Exxon Mobil, Ford Motor, Meta Platforms, Qualcomm, Sony, Spotify, and UBS Group;
- Reserve Bank of Australia rate decision, Tuesday;
- Manufacturing PMIs, including eurozone, Tuesday;
- OPEC+ meeting on output, Wednesday;
- Eurozone CPI, Wednesday;
- Bank of England, European Central Bank interest rate decision, Thursday;
- Fed Board of Governors confirmation hearing, Thursday;
- US factory orders, initial jobless claims, durable goods, Thursday;
- US payroll report for January, Friday;
- Winter Olympics in China, Russian President Vladimir Putin is due to attend the opening ceremony, Friday.