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Wall Street rally after BofA results, reversal in UK

  • Bank of America, BNY benefits from rising interest rates
  • Growth rates jump as government interest rates fall
  • Goldman Sachs up on report of major business overhaul
  • Dow up 1.86%, S&P 500 up 2.65%, Nasdaq up 3.43%

NEW YORK, Oct 17 (Reuters) – U.S. stocks opened the trading week higher on Monday after Britain reversed course on an economic front, while Bank of America was the latest financial company to post solid quarterly results, lifting optimism about the corporate earnings season.

Britain appointed Jeremy Hunt as Chancellor of the Exchequer, and he immediately rejected many of Prime Minister Liz Truss’s fiscal measures, which have unnerved markets in recent weeks.

Bank of America Corp ( BAC.N ) shares rose 6.06% as the lender’s net interest income was boosted by rising interest rates in the quarter, even as it added $378 million to its loss reserves to shore up a softening economy.

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Fellow financial Bank of NY Mellon Corp ( BK.N ) also benefited from higher interest rates, with shares rising 5.08%.

Overall, higher interest rates boosted interest income for lenders in the third quarter, giving investors hope that the current earnings season will be able to prevent a lower expectation limit. Earnings growth for the quarter is 3%, according to Refinitiv data, down from 4.5% at the start of the month and 11.1% on July 1.

“In a fragile market like this, any kind of good news at the margin can go a long way,” said Emily Roland, investment strategist at John Hancock Investment Management in Boston.

“There’s better sentiment around what’s happening in the UK, financials are being supported by a number of factors, better net interest margins are a key element, higher interest rates will be good for the banks, so third quarter earnings might look to be a little less bad than feared, I would say, perhaps not necessarily better than feared.”

The S&P 500 banking index (.SPXBK) was up 3.48%, while each of the 11 major S&P 500 sectors was higher.

The Dow Jones Industrial Average (.DJI) rose 550.99 points, or 1.86%, to 30,185.82, the S&P 500 (.SPX) gained 94.88 points, or 2.65%, to 3,677.95 and The Nasdaq Composite added 1.54IX. 3.43% to 10,675.80.

US stocks remain mired in a bear market, having struggled through September, a historically tough month. Analysts who are said to have better valuations of stocks entering what is traditionally a stronger period for stocks also supported Monday’s rally. However, aggressive rate hikes by the 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 key driver, they’re implementing the most aggressive tightening in the shortest amount of time that we’ve seen in our generation, and it’s important to remember that Fed policy, it works with a team,” Roland said.

Data on manufacturing in the New York region was weaker than expected, adding fuel to expectations a Fed pivot could be on the horizon.

Shares of Goldman Sachs ( GS.N ), which will release results on Tuesday, rose 2.24% on reports of a plan to combine its investment banking and trading operations.

Large megacap growth stocks such as Apple Inc ( AAPL.O ), Meta Platforms Inc ( META.O ), ( AMZN.O ) and Tesla Inc ( TSLA.O ) all rose, helping lift the S&P 500 growth index ( .IGX) by 3.42%, the biggest daily percentage jump since July 27.

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

Volume on US exchanges was 10.65 billion shares, compared to the 11.52 billion average for the full session over the past 20 trading days.

Advances outnumbered decliners on the NYSE by a ratio of 4.79 to 1; on the Nasdaq, a ratio of 2.98 to 1 favored advances.

S&P 500 posted no new 52-week highs and 2 new lows; The Nasdaq Composite registered 83 new highs and 146 new lows.

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Reporting by Chuck Mikolajczak; Editing by David Gregorio

Our standards: Thomson Reuters Trust Principles.

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