The Dow, Wall Street’s broadest equities indicator comprising stocks of 30 large US corporations, closed Monday’s session up 765 points, or 2.7%, at 29,491. The Dow fell 2.9% in September and almost 7% for the third quarter.
The S&P 500 Index, which represents the top 500 US stocks, finished up 93 points, or 2.6%, at 3,678. The S&P lost more than 9% last month and more than 5% for the quarter.
The Nasdaq Composite Index, which comprises marquee names in technology such as Amazon, Apple, Facebook, Netflix and Google, settled up 240 points, or 2.3%, at 10,815. The Nasdaq lost almost 11% in September and over 4% for the third quarter.
Stocks rallied after a duo of weaker-than-expected economic reports showing manufacturing activity unexpectedly slipped into contraction, and construction activity was worse than feared, stoked optimism somewhat that the Fed may be forced to consider a pivot to avoid pushing the economy into a deep recession.
"It is premature to say that the Fed is almost done with [monetary policy] tightening, but it seems Wall Street is growing confident that they could be done in December," Ed Moya, analyst at online trading platform OANDA, said. "Investors are starting to doubt central banks globally will remain aggressive with fighting inflation as financial stability risks are growing."
ISM manufacturing data for September showed a drop to 50.9 from 52.8, well below economists’ forecasts for a drop to 52.2. A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for about 12% of the US economy.
The potential for the Fed to keep doing jumbo-sized interest rate hikes to bring down US inflation has been the main drag on the stock market and other risk assets.
Investors are assessing the likelihood of another 75 basis-point rate hike at the Fed’s November meeting. The Fed’s policy rate is now in the 3%-3.25% range, a full 3 percentage points higher than where it was at the start of 2022, and officials have penciled in another increase in December after the forthcoming one in November.
A slew of Fed policymakers are to speak this week to push the US central bank’s agenda. They include Federal Reserve Bank of New York President John Williams, Federal Reserve Bank of Atlanta President Raphael Bostic, Federal Reserve Bank of Chicago President Charles Evans, Federal Reserve Bank of San Francisco President Mary Daly and Federal Reserve Bank of Cleveland President Loretta Mester.