Stocks Rally on Bets Shutdown Endgame Is Near

Talley Leger, Chief Market Strategist at Wealth Consulting Group, explains why easing inflation and expanding profit margins reinforce the bull market case.

Wall Street traders rushed to the riskiest corners of the market, with stocks climbing alongside Bitcoin as the US Senate advanced a plan to end the longest-ever government shutdown and remove a significant economic headwind. Bonds edged lower.

The risk-on bid lifted the S&P 500 by more than 1%, following its worst week in about a month. Tech shares, which had been hit the hardest in recent days, drove the rally in equities on Monday. As the bid for safety waned, Treasuries lost steam while the dollar underperformed most of its major peers.

The US Senate took a major step toward re-opening the government after a group of moderate Democrats broke with their party leaders and voted to support a deal to end the record-breaking shutdown.

While the Senate has not yet scheduled a vote for final passage - and the House also needs to approve the measure before it goes to President Donald Trump - markets took the step as a breakthrough. Ending the shutdown would give investors access to economic data and more clarity on the outlook for Federal Reserve policy.

The market reaction might seem obvious, but it does make considerable sense, given that restoration of funding would remove a growth headwind, but also a huge chunk of uncertainty which had increasingly been clouding the outlook, according to Michael Brown at Pepperstone.

That would allow traders “to re-focus on what remains a solid bull case of the underlying economy remaining robust, earnings growth proving resilient, the monetary backdrop continuing to loosen, and a calmer tone being taken on trade,” he said.

The S&P 500 reclaimed its 6,800 mark. A gauge of the “Magnificent Seven” megacaps climbed over 2%.

Short-dated Treasuries trailed the rest of the curve, with two-year yields up two basis points to 3.58%. There will be fresh tests of demand this week, with auctions of new three-, 10-year notes and 30-year bonds — totaling $125 billion. The bond market will be closed Tuesday for Veterans Day.

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