U.S. Stocks Rebound, Bond Rout Eases Before Brainard Comments

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U.S. stocks rebounded after the biggest rout since June wiped about $500 billion from the value of equities, while Treasury yields held near two-month highs before the Federal Reserve’s Lael Brainard official speaks. Emerging-market assets slumped.

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The S&P 500 Index jumped after sinking 2.5 percent Friday, with all 10 main groups joining the advance. The yield on 10-year Treasuries held near 1.68 percent amid concern that central banks are preparing to wean markets off stimulus. Shares in Europe and Asia, which were closed Friday when the selloff began, dropped Monday. Emerging-market equities tumbled 2.3 percent, while oil rebounded past $46 a barrel. The yen is advanced.

While financial markets were jolted out of a period of calm by an uptick in concern over central bank policies’ outlook, futures traders on Monday are assigning just a 28 percent chance of a rate hike at the Fed’s September meeting. Lael Brainard, a board of governors, speaks in Chicago today, the last speaker before next week’s meeting. On Friday, Boston Fed President Eric Rosengren signaled more willingness to raise interest rates, a day after European Central Bank chief Mario Draghi downplayed the need to add to stimulus.

“It looks like maybe things got out of hand on Friday afternoon without a lot of people around, and maybe it’s moderating now,” Andrew Brenner, the head of international fixed income for National Alliance Capital Markets, said by phone. “Stocks, bonds, it’s all connected right now, and it all depends on what happens when the Brainard text is released later today.”

Stocks

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The S&P 500 rose 0.5 percent to 2,138.68 at 12:02 p.m. in New York, rebounding from its worst selloff since June. The move was the first of at least 1 percent since July 8, a streak of 43 consecutive days. Before that, the benchmark had hovered near a record last reached on Aug. 15, amid mixed economic data and speculation about the Fed’s policy on interest rates. According to Goldman Sachs Group Inc, the low volatility also propelled investor bullishness to extremely elevated levels, which bodes ill for short-term equity performance.

The MSCI All-Country World Index of shares fell for a third day, dropping 0.3 percent. All major western-European stock markets slid as the Stoxx Europe 600 Index lost 1 percent, paring a route that reached 2 percent.

“I’d take this as another of those blips when markets come to terms with less stimulus,” said  Kully Samra, a London-based client manager at Charles Schwab Corp., which has $2.7 trillion in client assets. “The market is hooked on any words coming out of the Fed. Some recent economic reports have made people challenge the wisdom of another rate increase this year.”

Brainard, seen as a leading opponent of rate increases for much of the past year, is the last scheduled Fed speaker before the self-imposed blackout period running up to the Sept. 20-21 policy meeting. Any hawkish shift in her rhetoric may stoke volatility in financial markets, which on Friday put the probability of a hike in borrowing costs this month at 30 percent.

The MSCI Emerging Markets Index slid 2.4 percent, the most since June 24. The gauge has slumped 4.2 percent in two days, poised for a one-month low. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong sank 4 percent, the most in seven months, and South Korea’s Kospi lost 2.3 percent.

Bonds

Treasuries fluctuated, with the yield on 10-year notes holding near 1.68 percent. The rate jumped 13 basis points in two days last week to end at the highest since June. The government will sell a combined $44 billion of three- and 10-year notes.




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