Wall Street rallies after BofA results and UK reversal

  • Bank of America and BNY benefit from rising interest rates
  • Growth stocks jump as Treasury yields fall
  • Goldman Sachs on the report of a major corporate overhaul
  • Dow up 1.86%, S&P 500 up 2.65%, Nasdaq up 3.43%

NEW YORK, Oct 17 (Reuters) – U.S. stocks started the trading week on Monday with a rally after Britain reversed course on an economic plan, while Bank of America was the latest financial firm to release strong quarterly results, which has raised optimism about the corporate earnings season.

Britain appointed Jeremy Hunt as finance minister, and he immediately rolled back many of Prime Minister Liz Truss’ tax measures that had confounded markets in recent weeks.

Shares of Bank of America Corp (BAC.N) jumped 6.06% as the lender’s net interest income was boosted by higher interest rates in the quarter, although it added $378 million to its loan loss reserves to deal with a slowing economy.

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Fellow Financial Bank of NY Mellon Corp (BK.N) also benefited from higher interest rates and its shares rose 5.08%.

Overall, the rate hike boosted interest income from lenders in the third quarter, giving investors hope that the current earnings season can break through a lowered expectation bar. The earnings growth estimate for the quarter is 3%, according to Refinitiv data, compared to 4.5% at the start of the month and 11.1% on July 1.

“In a fragile market like this, any kind of good news in the margin can do a lot,” said Emily Roland, co-head of investment strategy at John Hancock Investment Management in Boston.

“There is a better sentiment around what is happening in the UK, financial earnings are supported by a number of factors, better net interest margins are a key element, higher rates are going to be good for banks, so third quarter earnings look maybe a little bit worse than feared, I would say, maybe not necessarily better than feared.”

The S&P 500 Banks Index (.SPXBK) rose 3.48%, while each of the 11 major S&P 500 sectors rose.

The Dow Jones Industrial Average (.DJI) rose 550.99 points, or 1.86%, to 30,185.82, the S&P 500 (.SPX) gained 94.88 points, or 2.65%, to 3,677.95 and the Nasdaq Composite (.IXIC) added 354.41 points, or 3.43%, to 10,675.80.

US stocks remain mired in a bear market, having struggled throughout September, a historically difficult month. Analysts said better stock valuations entering what is traditionally a stronger period for stocks were also supporting Monday’s rally. Aggressive interest rate hikes by the Federal Reserve could, however, be a stumbling block.

Valuations have fallen sharply but still above the 20-year average

“Right now the Fed owns the market, Fed policy is the main driver, they are implementing the most aggressive tightening in the shortest time frame that we have seen in our generation and it is important to remember that Fed policy, it works with a lag,” Roland said.

Manufacturing data in the New York area was weaker than expected, fueling expectations that a Fed pivot could be on the horizon.

Shares of Goldman Sachs (GS.N), which will report results on Tuesday, rose 2.24% following reports of a plan to combine its investment banking and trading businesses.

Major megacap growth stocks like Apple Inc (AAPL.O), Meta Platforms Inc (META.O), Amazon.com (AMZN.O) and Tesla Inc (TSLA.O) all rallied, helping lift the S&P 500 (.IGX) growth index of 3.42%, its biggest daily percentage jump since July 27.

Tesla Inc (TSLA.O), Netflix (NFLX.O) and Johnson & Johnson (JNJ.N) are among the companies expected to report results later in the week.

Volume on U.S. exchanges was 10.65 billion shares, compared to an average of 11.52 billion for the full session over the past 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a ratio of 4.79 to 1; on the Nasdaq, a ratio of 2.98 to 1 favored advancers.

The S&P 500 posted no new 52-week highs and 2 new lows; the Nasdaq Composite recorded 83 new highs and 146 new lows.

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Reporting by Chuck Mikolajczak; Editing by David Gregorio

Our standards: The Thomson Reuters Trust Principles.

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