Nasdaq, S&P 500, Dow Jones shake off early Ukraine worries to add to recent rebound

Mar. 17, 2022 4:01 PM ETS&P 500 Index (SP500)DJI, JPMBy: Kim Khan, SA News Editor36 Comments

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Stocks rose again on Thursday, adding to a rally posted the previous session, as investors took a glass-half-full approach to rising oil prices and the start of the Federal Reserve's long-awaited rate-hiking cycle. The S&P 500 closed above 4,400 for the first time since before the start of the conflict in Ukraine.

The major averages posted substantial gains during the previous session, as the Fed announced its first rate hike since 2018 and gave a hawkish picture of monetary policy for the rest of the year. Shares had fallen ahead of the Fed's announcement, with the S&P 500 closing below 4,200 earlier this week and the Nasdaq reaching its lowest close since late 2020.

With the Fed giving more clarity about its intentions and the possibility that inflation might finally begin to moderate, stocks added to their rebound in Thursday's trading, despite ongoing fighting in Ukraine and a tick back to the upside for oil prices.

The Nasdaq (COMP.IND) is rising 1.2%, S&P (SP500) +1.3% and Dow (DJI) also gains 1.2% in early afternoon trading.

Looking at the day's closing numbers, the S&P 500 advanced 53.81 points to reach 4,411.67. This was the first close above 4,400 since Feb. 16 -- before the Russian invasion of Ukraine.

The Dow advanced 417.66 points to finish at 34,480.76. The Nasdaq ended at 13,614.78, a gain of 178.23 on the day.

All 11 S&P sectors are pushing higher, led by Energy. The 10-year Treasury yield is up about 1 basis point to almost 2.2%, while the 2 year is down 3 basis points to 1.94%.

A denial by the Kremlin this morning that there is progress in ceasefire talks weighed on sentiment early, sparking an early dip. News that JPMorgan Chase (JPM) has processed funds allocated for Russian government bond interest payments signals that the country may be able to stave off default for a time. Oil prices are rallying sharply with WTI above $100 per barrel.

The S&P is coming off its biggest two-day gain since April 2020.

On the economic front, weekly jobless claims fell to 214K. February housing starts rose more than expected to an annual rate of of 1.77M.

The March Philly Fed index showed some resilience in manufacturing, rising unexpectedly to 27.4.

"The leap in the Philly Fed is a big surprise, after the sharp drop in the Empire State index," Pantheon Macro said. "The jump in the headline to a four-month high is reflected in hefty increases in new orders, shipments, employment and the workweek. The bad news is that measures of supply chain pressures deteriorated, with unfilled orders and delivery times rising; the latter jumped 16.7 points to a 10-month high."

"We don’t know yet if this a knee-jerk response to the war in Ukraine, or is a sign that China’s anti-Covid measure are triggering renewed disruptions, or both, but it is an unwelcome development either way."

Stocks rallied into the close on Wednesday as Fed chief Jerome Powell played down the possibility of a recession, but the flattening of the curve is signaling worries in the bond market about a hard landing.

The 5s-10s curve inverted Wednesday for the first time since March 2020.

On average, "it takes around three years from the first Fed hike to recession," Deutsche Bank's Jim Reid said. "However the bad news is that all but one of the recessions inside 37 months (essentially three years) occurred when the 2s10s curve inverted before the hiking cycle ended."

"We think the Fed is using a modified forward guidance framework that has fewer disadvantages than the one from which it is now exiting," Standard Chartered's Steve Englander wrote. "Formal forward guidance reduces the uncertainty around future policy, encouraging the market to lever up on the Fed’s policy commitments."

"This modified forward guidance framework allows the Fed to take hawkish monetary policy out for a spin and see how well the economy deals with it. If the underlying economic or inflation momentum is weaker (as we expect), the Fed rhetoric can back off. If inflation turns out to be even more resilient, it can follow up on the rates already priced in and up the hawkish ante."

Among active stocks, Occidental Petroleum was a standout performer in the S&P after Berkshire Hathaway boosted its stake.

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