US stocks rally to their best day in 6 weeks after oil prices and bond yields ease
NEW YORK (AP) — The U.S. stock market rallied to its best day in six weeks Thursday after falling oil prices and easing pressure from the bond market helped Wall Street reverse many of its moves from the prior day.
The S&P 500 jumped 1.1% for just its second rise in the last nine days. The Dow Jones Industrial Average added 316 points, or 0.6%, and the Nasdaq composite climbed 1.7%.
Stocks got a boost after the price for a barrel of Brent crude oil slid 1% to settle at $104.82. That’s down from the nearly $110 it reached earlier in the week on worries that the war with Iran will keep oil bottled up in the Middle East instead of going to customers worldwide.
Brent is of course still much more expensive than the $72 per barrel that it cost earlier this summer, but Thursday’s drop helped pull yields lower in the bond market and removed some pressure on stocks. The yield on the 10-year Treasury fell to 4.93% from 5.01% late Wednesday.
Higher yields make it more expensive for everyone to borrow money, from the U.S. government to people looking to buy houses to businesses wanting to build data centers. That in turn slows the economy.
The Federal Reserve on Wednesday raised the short-term interest rate that it controls, the federal funds rate, by a quarter of a percentage point for its first hike in more than three years. Officials also signaled they may raise the federal funds rate one more time this year as they try to get the nation’s high inflation under control.
The signals sent Wall Street on a roller coaster. Stocks initially remained higher for the day after the Fed made its announcement Wednesday. They then slid sharply before recovering a chunk of the losses before trading ended.
On the upside for markets, the shift to higher interest rates built confidence that the Fed is committed to getting inflation back to its target of 2%. Questions had begun to bubble earlier about whether it would feel pressure from President Donald Trump, who is calling for lower interest rates. And the short-term cost of pain for the economy could be worth it if it gets inflation under control following years of its staying too high.
On the downside for markets, higher rates undercut prices for stocks and other investments. When investors earn more in interest from bonds, which are considered safer investments, they’re less willing to pay high prices for other investments. That’s beyond the slowing effect that higher rates have on the economy in hopes of removing fuel for inflation.