Wall Street extends rally on signs of ebbing Fed rate hikes

US stocks closed sharply higher on Tuesday as soft economic data hinted that the Fed’s aggressive policy is taking effect, while falling benchmark Treasury yields boosted the rally’s momentum. All three major US stock indexes advanced for the third straight session, with market-leading megacaps providing the most upside muscle. The S&P 500 has reclaimed about 8 percent from the trough of its October 12 close.

“There’s increasing discussion about a light at the end of the tunnel for Fed rate hikes,” said Bill Merz, head of capital market research at U.S. Bank Wealth Management in Minneapolis. Merz also cautioned that it wouldn’t be known for some time whether decades-high inflation was “decisively headed toward the Fed’s target.” “We’re seeing a bit of a reprieve in the dollar and long-term bond yields have come down a little bit,” Merz added. “Those factors are combining to provide room for a bit of a rally.”

After the bell, Microsoft and Alphabet delivered weaker-than-expected quarterly results, sending their shares down about 7 percent. That helped push S&P 500 mini futures down almost 1 percent, suggesting traders expect the stock market to open deep in negative territory on Wednesday.

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