U.S. stocks rallied and global equities halted a six-day losing streak as selloffs in credit markets and crude abated. Treasuries fell, while the dollar gained with the odds for a Fed rate hike Wednesday above 75 percent.
The Standard & Poor’s 500 Index headed for its first back-to-back gains since Nov. 3, and European equities rallied the most in 10 weeks as the cost of insuring corporate debt ended a five-day surge and U.S. crude futures climbed past $37 a barrel. The yield on the two-year Treasury note approached a five-year high. The dollar rose for a fifth day.
Tension eased on global financial markets a day before the Fed is expected to raise rates and assure investors that any subsequent hikes will be gradual as long as economic growth remains steady. The first gains in four days for junk bonds and crude’s rebound from a six-year low helped quell concern that a selloff in riskier assets would derail global growth just as the Fed tightens.
“The Fed will be comfortable with a rate hike tomorrow,” said Brian Jacobsen, who helps oversee $242 billion as the chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. “I don’t think they want to show they’re beholden to the whims and fancies of traders, so they’ll probably still plow ahead with the plan to hike. But they’ll certainly want to convincingly signal that they’re going to follow a very shallow path in future rate hikes.”
The S&P 500 added 1.4 percent at 2:15 p.m. in New York, adding to a 0.5 percent advance Monday that erased a 1.9 percent rout on Friday. Data today reinforced expectations for a gradual increase in rates, with the cost of living holding steady in November, underscoring scant inflation that is well below the Fed’s goal.
BlackRock’s iShares iBoxx High Yield Corporate Bond ETF, the largest exchange-traded fund of its kind, and SPDR Barclays High Yield Bond ETF both gained for the first time in four days after touching six-year lows Monday.
Tuesday’s rally cut the S&P 500’s slide in December to 1.4 percent. While the month historically has been one of the best of the year, the index is headed for its worst December in 13 years and the biggest annual drop since 2008.
The probability the Fed will increase its benchmark rate on Wednesday is 76 percent, according to futures data compiled by Bloomberg. Traders are pricing in less than three increases of 0.25 percentage point in the next year, taking the fed funds effective rate to 0.76 percent from 0.14 percent.
The Stoxx Europe 600 jumped 2.9 percent from a 10-week low. Germany’s DAX Index and France’s CAC 40 were among the biggest gainers, rising at least 3.1 percent. The Stoxx 600 is still down 6.7 percent this month, on course for its worst December since 2002 amid a rout in commodities, concern about U.S. monetary policy tightening and disappointment over the extent of European stimulus.
Treasuries fell, pushing 10-year yields to the highest in more than a week, as demand for fixed income around the globe slumped after stocks and oil prices rebounded. The rate on the policy-sensitive two-year note added two basis points to 0.96 percent.