Stocks Stage Comeback With Revival of Value Trade: Markets Wrap

(Bloomberg) -- Stocks notched their biggest rally in five weeks as speculation the Federal Reserve will tighten policy at a gradual pace outweighed concern about the central bank’s hawkish pivot.

A relative sense of calm returned to markets, with risk assets rebounding after last week’s selloff. Energy, financial and industrial shares led gains in the S&P 500, while high-flying tech companies underperformed. A gauge of small caps climbed more than 2%. Amazon.com Inc. fell as the online retail giant kicked off its Prime Day sale, with merchants curbing discounts amid rising shipping costs. Treasuries and the dollar retreated. Bitcoin sank as China intensified its cryptocurrency crackdown.

A number of influential voices said Monday the central bank’s outlook needs to be more attuned to inflation risks. Dallas Fed President Robert Kaplan said he favors starting the process of reducing bond purchases “sooner rather than later,” while his counterpart from St. Louis James Bullard called it “appropriate” that policy makers opened the taper debate. Former Treasury Secretary Lawrence Summers and billionaire investor Ray Dalio said the U.S. is headed for a period of overheating and inflation that could threaten the economic recovery.

Meanwhile, New York Fed President John Williams said he continues to view the recent spike in inflation as a temporary phenomenon. For Charles Schwab & Co.’s Jeffrey Kleintop, monetary tightening should happen at a much slower pace when compared to the rush to loose policy at the start of the pandemic.

“The way back up in terms of rate hikes may be much more gradual, and that might allow economically sensitive stocks to perform well,” said Kleintop, chief global investment strategist at the firm.

Read: Mnuchin Says Fed Needs to Go Into Period of Normalizing Policy

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Here are some events to watch this week:

• Fed Chair Jerome Powell testifies at a House Subcommittee hearing on the Fed’s pandemic emergency lending and its asset purchase programs Tuesday
• Bank of England interest rate decision Thursday

These are some of the main moves in financial markets:

Stocks

• The S&P 500 rose 1.4% as of 4 p.m. New York time
• The Nasdaq 100 rose 0.6%
• The Dow Jones Industrial Average rose 1.8%
• The MSCI World index rose 0.7%

Currencies

• The Bloomberg Dollar Spot Index fell 0.4%
• The euro rose 0.5% to $1.1918
• The British pound rose 0.9% to $1.3929
• The Japanese yen was little changed at 110.28 per dollar

Bonds

• The yield on 10-year Treasuries rose five basis points to 1.49%
• Germany’s 10-year yield advanced three basis points to -0.17%
• Britain’s 10-year yield advanced two basis points to 0.77%

Commodities

• West Texas Intermediate crude rose 2.7% to $73.54 a barrel
• Gold futures rose 0.8% to $1,783.10 an ounce

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