U.S. stocks gained as investors weighed economic resilience against the threats of rising rates and the impact of the war in Ukraine.

The S&P 500 advanced, clawing back Wednesday’s losses as all the 11 main industry groups rose. The tech-heavy Nasdaq 100 gained the most among major benchmarks, climbing 2.2 per cent. Treasuries resumed their slide, with the 10-year benchmark yield rising as much as 10 basis points to 2.39 per cent. Oil fell about 3 per cent in New York, while Bitcoin climbed to a three-week high.

While bonds have suffered unprecedented losses globally, shares have rallied to levels seen before the start of the war in Ukraine. Data Thursday showed applications for U.S. state unemployment insurance fell last week to the lowest since 1969, while a measure for business activity advanced to an eight-month high in early March as fewer COVID-19 restrictions and less severe supply chain disruptions supported demand and production.

Investors are selling bonds as Federal Reserve officials warn steeper rate hikes may be necessary to subdue the hottest inflation in four decades. Fed Chair Jerome Powell explicitly put a half-point hike on the table in May if needed, saying the economy is strong enough to weather higher borrowing costs.

“We always knew rates are going to head higher, and the main question or concern is what happens to growth,” Chris Gaffney, president of world markets at TIAA Bank, said by phone. “Powell has continued to say that he believes the U.S. economy is strong enough to withstand higher rates and now we’ll get a chance to see. The war in Ukraine certainly has pushed commodity prices higher -- how much that will impact consumer spending” remains a big question. “So far it doesn’t seem like it’s slowed them down too much.”

According to Pimco, the tightening cycle may end with the Fed hoisting its key rate to 2.75 per cent by the end of 2023 -- despite distress signals from the bond market. Chicago Fed President Charles Evans said Thursday he’s “comfortable” with raising rates in quarter-point increments, while being “open” to a 50 basis-point move if needed. The U.S. central bank raised the benchmark rate a quarter point to 0.50 per cent last week, the first increase since 2018. 

Oil slipped, with futures in New York trading to near US$112 a barrel in a choppy session, as traders weighed the impact of rising trading costs on the major exchanges. Commodity prices have staged erratic rallies amid supply pressures and sanctions as Russia’s attacks on Ukraine show no sign of abating.

On the geopolitical front, the U.S. announced a new package of sanctions on Russian elites, lawmakers and defense companies designed to ramp up pressure on Moscow. NATO agreed to boost its deployments in the eastern portion of the defense alliance, as the U.S. said it is working with NATO to prepare for possible biological or nuclear incidents by Russia.

Bitcoin climbed to more than US$44,000 for the first time in almost a month, breaking out of its recent narrow trading range amid a renewal of risk appetite.

Russian equities rose more than 4 per cent after Moscow Exchange resumed shortened four-hour trading in 33 out of 50 equities listed on the benchmark. Russian government intervention to prop up the stock market helped lift shares on the first day of trading since Feb. 28.

More commentary:

  • “Markets seem encouraged by oil continuing to come back down from the really high levels we saw earlier this month and I think there is a renewed belief among equity investors that the Fed is going to aggressively fight inflation,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “We’re not as sanguine and think it will be more difficult than most equity investors are assuming, but we do agree that a more aggressive Fed is necessary as inflation is the number one problem facing the U.S. economy.”
  • “Stocks are pushing higher and oil prices fall as the market breaths a sign of relief following Biden’s diplomatic marathon in Brussels.” Fiona Cincotta, senior market analyst at City Index,. Whilst NATO, Biden and the EU leaders agreed to strengthen forces and tighten sanctions to bring Russia to its knees economically, oil has managed to stay out of the equation, which is the point of relief for the markets.”

Some of the main moves in markets:

Stocks

  • The S&P 500 rose 1.4 per cent as of 4 p.m. New York time
  • The Nasdaq 100 rose 2.2 per cent
  • The Dow Jones Industrial Average rose 1 per cent
  • The MSCI World index rose 0.8 per cent

Currencies

  • The Bloomberg Dollar Spot Index was little changed
  • The euro was little changed at US$1.0999
  • The British pound fell 0.1 per cent to US$1.3188
  • The Japanese yen fell 1 per cent to 122.32 per dollar

Bonds

  • The yield on 10-year Treasuries advanced seven basis points to 2.36 per cent
  • Germany’s 10-year yield advanced seven basis points to 0.53 per cent
  • Britain’s 10-year yield advanced two basis points to 1.65 per cent

Commodities

  • West Texas Intermediate crude fell 3 per cent to US$111.45 a barrel
  • Gold futures rose 1.3 per cent to US$1,967.30 an ounce