Wall Street rallies after BofA results, UK reversal

  • Bank of America, BNY benefit from rising interest rates
  • Growth stocks rise when government bond yields fall
  • Goldman Sachs updates report on major corporate overhaul

NEW YORK, Oct 17 (Reuters) – US stocks started the trading week with a rally on Monday after Britain changed course on an economic plan, while Bank of America became the latest financial firm to report solid quarterly results, marking the Optimism for corporate earnings season.

Britain appointed Jeremy Hunt as Treasury Secretary and he immediately reversed many of Prime Minister Liz Truss’ fiscal measures that had unsettled markets in recent weeks.

Bank of America Corp (BAC.N) shares rose as the lender’s net interest income was boosted by rising interest rates during the quarter, even as the company increased its loan loss reserve by $378 million to brace for a slowing economy to support.

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

Overall, higher interest rates pushed up lenders’ interest income in the third quarter, giving investors hope that the current earnings season will be able to outpace lower expectations. Earnings growth estimate for the quarter comes in at 3%, according to Refinitiv data, compared to 4.5% at the start of the month and 11.1% on July 1st.

“In a fragile market like this, any kind of good news can make a big difference on the margins,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management in Boston.

“Sentiment in the UK is better, financial returns are supported by a number of factors, better net interest margins are a key element, higher interest rates will be good for banks so third quarter earnings may look a little less dire than feared I say, maybe not necessarily better than feared.”

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The S&P 500 Bank Index (.SPXBK) was up more than 3%, while each of the 11 major S&P 500 sectors was higher.

According to preliminary data, the S&P 500 (.SPX) was up 95.33 points, or 2.66%, to 3,678.40 points, while the Nasdaq Composite (.IXIC) was up 355.42 points, or 3.44%, to 10,676.81 . The Dow Jones Industrial Average (.DJI) was up 566.35 points, or 1.91%, to 30,201.18.

US stocks remain in a bear market after struggling in September, a historically difficult month. Analysts said improving stock valuations, coming in a traditionally stronger period for stocks, also supported Monday’s rally. However, aggressive rate hikes by the US Federal Reserve could be a stumbling block.

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

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

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New York-area manufacturing data came in weaker than expected, further fueling expectations that the Fed might turn around.

Shares of Goldman Sachs (GS.N), which is due to report results on Tuesday, also rose on reports of a plan to combine its investment banking and trading businesses.

Large megacap growth stocks such as Apple Inc (AAPL.O), Meta Platforms Inc (META.O), Amazon.com (AMZN.O) and Tesla Inc (TSLA.O) all rallied and helped push the S&P 500 to lift growth index (.IGX) by more than 3%.

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

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Reporting by Chuck Mikolajczak; Editing by David Gregorio

Our standards: The Thomson Reuters Trust Principles.

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