NEW YORK: Wall Street’s main indexes edged higher on Tuesday, led by energy and financial stocks, after the Bank of Japan tweaked its monetary policy in a surprise move that would allow long-term interest rates to rise more.
Major US equity averages marked their fourth straight session of losses on Monday as investors shied away from riskier bets, worried that the Federal Reserve’s interest rate hikes could push the US economy into recession.
The BOJ on Tuesday decided to allow the 10-year bond yield to move in a wider band of 50 basis points either side of its 0% target, against expectations of no change at its policy meeting.
Energy and material indexes led gains among the major S&P sectors, up 1.6% and 0.8%, as crude and metal prices gained against a weaker dollar.
Financial stocks climbed 0.9%, with banks benefiting from a rise in Treasury yields.
“Raising the benchmark rate is something that they have not been doing, so it looks like the world is on the same page and is having a coordinated interest rate increase to try and battle inflation,” said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh.
“We’re slowly coming out of processing the Fed’s hawkishness. The Fed has managed to slow the economy down so it’s likely that earnings estimates (for Q4) are going to come down. By how much is the question.” The Fed struck a hawkish tone last week at its policy meeting by saying that it expects interest rates to remain higher for longer, sparking a selloff across stock markets.
Money market participants see a 61% chance the Fed will hike its key benchmark rate by 25 basis points in February to 4.50%-4.75%, keeping the terminal rate at 4.9% by May 2023.
Treasuries fell following the BOJ’s shock move, with the benchmark 10-year Treasury yield rising to a three-week high of 3.68 percent.
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