US stocks rallied on Monday while government bond prices fell, as investors returned to riskier assets after growth fears and high inflation left the S&P 500 nursing its seventh consecutive week of losses.
The broad S&P gauge was up 1.8 per cent by mid-afternoon in New York, with gains in every sector. The tech-heavy Nasdaq Composite added 1.4 per cent.
Global equities have dropped this year as inflation — driven by economies reopening from coronavirus shutdowns and Russia’s invasion of Ukraine disrupting fuel and food prices — hit multi-decade highs in many countries and central banks moved to raise interest rates in response.
However, some investors have begun to question whether markets have now priced in enough bad news to create buying opportunities.
Monday’s advance followed a late turnround on Wall Street on Friday when the S&P briefly entered bear market territory — defined as a 20 per cent drop from a recent peak — before rebounding to close 0.01 per cent higher.
“Clients are mainly asking us about the risk of a global recession and the stickiness of inflation,” said James Ashley, head of international market strategy at Goldman Sachs Asset Management.
“Our view is that, globally, we can’t avoid a slowdown but we can avoid a recession.”
The increased risk appetite among investors on Monday was also reflected in currency and government bond markets. The yield on the 10-year US Treasury note, which rises when prices fall, climbed 0.07 percentage points to 2.86 per cent. Germany’s equivalent Bund yield rose by the same amount, to 1.01 per cent.
Meanwhile, the dollar index, which measures the greenback against six major currencies and which tends to strengthen during times of uncertainty, dropped 1 per cent.
The dollar has set several 20-year highs in recent weeks, but analysts are now querying whether the reserve currency’s rally has gone too far.
“The market has hoarded a huge amount of dollars in recent months,” Deutsche Bank strategist George Saravelos said, “leading to a very substantial dollar overvaluation.”
Saravelos added that dollar buying in the past six months has been “equivalent to” the level of inflows seen during the 2008 collapse of Lehman brothers and the coronavirus-induced market ructions of March 2020.
“The deterioration in global growth that is priced in [to the dollar] is not only large, but also bigger than what is priced in by other asset classes,” he said.
The euro rose 1.1 per cent per cent against the US currency to just under $1.07, bouncing on dollar weakness and the European Central Bank president Christine Lagarde signalling the end of negative interest rates in the eurozone within months. Sterling added 0.7 per cent to just under $1.26.
In European stock markets, the Stoxx 600 share index added 1.3 per cent, while London’s FTSE 100 rose 1.7 per cent. UK-listed mining shares rallied after Chinese policymakers pledged new steps to support the nation’s pandemic-blighted economy.
Earlier in the session, Hong Kong’s Hang Seng share index closed 1.2 per cent lower after the city of Beijing reported rising coronavirus cases, increasing fears of further social restrictions under China’s zero-Covid policy. The Hang Seng has lost about a tenth of its value since early March. Mainland China’s CSI 300 dropped 0.6 per cent on Monday, while the Nikkei 225 in Tokyo added 1 per cent.
Brent crude, the oil benchmark, added 0.8 per cent $113.38 a barrel.