S&P 500 rebounds 2.4% after sharp weekly decline
US Treasuries come under pressure as markets reopen after a one-day holiday
Marcus Stuart (MS)May 9, 2025
U.S. stocks rallied on Tuesday, leading the S&P 500 index to its best day since late May as traders hunted for bargains after a steep weekly decline in global equities sparked by central banks raising interest rates .
The S&P 500 closed 2.4 percent higher as trading resumed after a bank holiday on Monday in New York, while the tech-heavy Nasdaq Composite gained 2.5 percent. The energy and consumer goods sectors were among the biggest climbers in the S&P.
The moves recouped some of the losses stock markets had suffered in recent weeks. The blue-chip S&P 500 index remains more than a fifth off its January peak, in a bear market as investors fear higher interest rates will slow the economy.
In Europe, the regional Stoxx 600 index rose 0.4 percent, extending gains from the previous session, but is still down around 16 percent for the year.
Markets in Asia were little moved on Wednesday after Wall Street rallied, with China's leading CSI 300 index slipping 0.5 percent and Japan's Topix index slipping 0.2 percent.
"A bear market rally was overdue because being down 10 weeks out of 11 is a bit extreme," said Hani Redha, multi-asset portfolio manager at PineBridge Investments.
"That doesn't change the overall picture of slowing growth and tightening financial conditions.
Some analysts also suggested that Tuesday's rally could be related to hedge fund covering of short positions after last week's short selling hit its highest level since 2008 (Bloomberg reported).
“On Friday it looked like some tech stocks with low profitability were the outperformers. Today it's a bit broader but we're still seeing this pattern. So I think short covering is a big part of that said Tom Graff, Head of Wealth Management at Facet Wealth.
The FTSE All World Index of developed and emerging market equities fell 5.7 percent last week, its sharpest decline since March 2020, its tenth decline in 11 weeks. The S&P fell 5.8 percent last week.
The losses came after the US Federal Reserve raised interest rates by 0.75 percentage points, the largest move of its kind since 1994. Federal Reserve Governor Christopher Waller called for a further 0.75 percentage point hike in the July, calling the central bank "determined to restore price stability" after US inflation hit a 40-year high in May.
In government bond markets, the yield on the benchmark 10-year Treasury note, which forms the basis of bond pricing around the world, rose 0.08 percentage point to 3.3%. The yield on the two-year government bond, which is sensitive to monetary policy, rose by 0.02 percentage points to 3.2 percent.
The Bank of England and the Swiss National Bank also hiked interest rates last week, while the European Central Bank primed markets for its first rate hike in more than a decade in July.
The Japanese yen fell to a 24-year low of 136.68 yen against the dollar on bets that the Bank of Japan will remain reluctant to follow other major rate-setters in raising borrowing costs.
Money markets expect the Fed to raise interest rates to around 3.6 percent by December. A majority of economists polled by the Financial Times forecast that the world's largest economy will slide into recession next year.
Global purchasing managers' surveys on Thursday will shed light on companies' order books and how they are coping with soaring food and fuel costs as a result of Russia's invasion of Ukraine and supply chain disruptions exacerbated by China's coronavirus lockdown became.
Elsewhere, the euro rose 0.2 percent to $1.053 on Tuesday after ECB President Christine Lagarde vowed to protect weaker euro-zone countries from rising borrowing costs.
