Stock Market News

The stock market surged Wednesday, with the Dow snapping a six-day losing streak, after the U.K.’s plan to start purchasing bonds kickstarted key movements in bonds and currencies.

The Dow Jones Industrial Average gained 549 points, or 1.9%, while the S&P 500 rose 2%, and the Nasdaq Composite advanced 2.1%. All three indexes had dipped into bear market territory this week, defined as a 20% or greater drop from all-time highs.

"European rates markets and (specifically, the UK) continue to be the marginal driver of global risk pricing,” wrote Christopher Harvey, chief U.S. equity strategist at Wells Fargo.

The Bank of England said Wednesday morning that it will buy long-dated bonds. The news came after the U.K. government announced a fiscal stimulus program worth billions of British pounds to aid an ailing economy in the face of rising energy costs that sent the nation’s bond yields higher.

“The Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for U.K. households and businesses,” the Bank of England said in a statement. “The [bond] purchases will be carried out on whatever scale is necessary to effect this outcome.”

It’s working for the moment, at least. The 10-year Gilt yield is down to 4.013%, after touching almost 4.6% earlier this week. Its decline has helped push U.S. yields lower, too: The 10-year Treasury yield dropped to 3.707% after it closed at 3.963% on Tuesday, its highest level since early 2010. Wednesday marked the 10-year yield’s largest decline since March 2009. Bond prices rise as yields fall.

Fixed income prices are rising so much, in fact, that Treasury traders made more money than stock index traders did Wednesday. The price of the iShares 20+ Year Treasury Bond Exchange-Traded Fund (TLT) rose just over 3% for the day.

“The Bank of England is applying plasters on the financial wounds created by the Truss government,” wrote XTB.com’s Joshua Raymond.

Now, the S&P 500 is bouncing off of the roughly 3,630-points level, where it has consistently found buyers to keep the index afloat since mid-June.

That makes the market’s attempt at stabilizing fairly unsurprising. Not only are bond yields down Wednesday, but the stock market was already in “oversold” territory. Less than a fifth of stocks in the S&P 500 entered Wednesday below their 200-day moving averages. That means they’re falling below longer-term trends, a negative signal, but one that also means that they’re cheap, especially if yields continue to back down.

“It doesn’t make sense to pile on to the negativity in the short term and become even more defensive after a large selloff has already occurred,” wrote Keith Lerner, co-chief investment officer at Truist.

One issue that remains for the stock market is a dollar that keeps rising. The U.S. Dollar Index (DXY) has hit 23 new multi-decade highs this year. Fortunately Wednesday, falling U.S. yields pushed the dollar down just over 1% to just over 112. When U.S. bonds become slightly less attractive, investors sell dollars.

That’s music to investors’ ears. A strong dollar reduces earnings for multinational companies that generate sales overseas. When they translate those sales into a stronger greenback, they report fewer earnings dollars.

"The dollar continues to be the focal point,” wrote NatAlliance Securities’ Andrew Brenner.

Not only is it a focal point, but it could become even more problematic. If the dollar remains strong for an extended period-– or even rises from here-–the Fed could initiate a currency program for other central banks. It would essentially give dollars to other central banks, who can funnel those dollars to companies in need of more greenbacks in order to conduct cross-border trade, thus stabilizing the global economy. When the dollar rises, global trade becomes more expensive so companies need more bucks. The world isn’t there yet, but that program is a slight possibility, said Sevens Report’s Tom Essaye.

It wasn't all about macroeconomic trends Wednesday, though. The stock market’s gains came even after Apple told suppliers to pull back from efforts to boost iPhone production by as much as 6 million units in the second half of this year, Bloomberg reported, in the latest sign of softening demand among consumers and weakness in the global economy. The news sent Apple (ticker: AAPL) stock down 1.3%.

Apple’s loss masked what would have been an even better day for the entire market. The tech giant’s unusually large market capitalization means that the stock’s movement has an outsized impact on the S&P 500’s movement. The Invesco S&P 500 Equal Weight Exchange-Traded Fund (RSP), which weights each stock in the index equally and therefore shows the movement of the average stock, gained 2.3%, higher than the standard market cap-weighted index.