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Sept. 29, 2022, 11:30 a.m. EDT

Dow closes up nearly 550 points in rebound from bear-market lows as bond yields fall after BOE intervention

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By Isabel Wang and Frances Yue

U.S. stock indexes on Wednesday rebounded from 2022 lows with support from a sharp fall in Treasury yields and a surprise intervention from the Bank of England in the U.K. government bond market. The Dow Jones Industrial Average snapped a six-session skid, while the S&P 500 ended its longest losing streak since February 2020.

How stock indexes traded

  • The Dow Jones Industrial Average  /zigman2/quotes/210598065/realtime DJIA +0.17% finished 548.75 points higher, or 1.9%, to 29,683.74

  • The S&P 500  /zigman2/quotes/210599714/realtime SPX +0.80% gained 71.75 points, or less than 2%, to end at 3,719.04

  • The Nasdaq Composite  /zigman2/quotes/210598365/realtime COMP +1.37% advanced 222.13 points, or 2.1%, finishing at 11,051.64

On Tuesday, the Dow Jones Industrial Average fell 126 points, or 0.43%, to 29135, the S&P 500 declined 8 points, or 0.21%, to 3647, and the Nasdaq Composite gained 27 points, or 0.25%, to 10830. The Nasdaq Composite was down 32.6% from its record high from November last year.

What drove markets

The S&P 500 rose 1.9%, climbing for the first time since the Federal Reserve hiked interest rates again a week ago, and received some support from a sharp fall in Treasury yields but not before the 10-year yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.43% early on Wednesday breached 4% for the first time since the 2008 crisis. The yield on 30-year UK gilts plummeted more than one percentage point. 

The Bank of England said that it was stepping into buy unlimited amounts of long-dated bonds to help stabilize markets after gilt yields soared and the pound slumped to a record low in the wake of last Friday’s U.K. budget announcements. The BOE also postponed a planned sale of gilts for next week. The yield on the 10-year gilt /zigman2/quotes/211347177/realtime BX:TMBMKGB-10Y +1.33% fell to 4.01% after the BoE’s announcement.

“I think it’s a warning to the Fed that that certainly things can get a bit out of control than what they imagined,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, by phone. “They need to be careful with breaking something. If you think about the Fed, they were driving the car 100 miles an hour last year, and now it is braking as fast as possible.”

See: Did something break? What investors need to know about U.K. financial chaos and a fragile global financial system

“The reason why the market is a little bit more happy today is because there still is some level of ‘put’ by central banks to make things a little less freaky,” said Schutte. “Intervention today gave the markets a little bit of hope that policymakers are not just blindly trying to eviscerate the economy and the markets.”

The concept of a “Fed put” option has been around since at least the October 1987, when stock-market crash prompted the Alan Greenspan-led central bank to lower interest rates, but stubborn inflation is widely seen having  eliminated the notion of a figurative “Fed put”  on the stock market.

Bond markets have been leading stocks of late as investors fret that the Federal Reserve’s determination to combat inflation will continue to push borrowing costs higher, damaging the economy and corporate earnings.

“Our central market view has been that pressure towards tighter U.S. financial conditions is unlikely to end until the economy either enters a clear recession or shows sustained inflation progress,” wrote Dominic Wilson, economic analyst at Goldman Sachs.

See: Bond-market volatility touches one of highest levels since 2007-2009 financial crisis and recession

The S&P 500 index on Tuesday fell for its sixth session in a row, shedding 6.5% over that period, and recording its longest losing streak since the beginning of the COVID-19 pandemic in February 2020.

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US : Nasdaq
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BX : Tullett Prebon
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