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Stocks kick off October with a huge rally

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Stocks kick off October with a huge rally

The New York Stock Exchange building is seen, Tuesday, Sept. 27, in the Financial District of New York. Stocks kicked off October with more treats than tricks for investors.

Stocks kicked off October with more treats than tricks for investors. The market rallied to begin the fourth quarter, despite growing worries about the financial health of European banking giant Credit Suisse and weak economic data.

The Dow rose more than 600 points, or 2.1% in mid-morning trading. The Nasdaq and S&P 500 were up 1.4% and 1.9%, respectively. Stocks ended September (and the third quarter) with a resounding thud on Friday.

Investors are increasingly worried about inflation and how the Federal Reserve's aggressive rate hikes to control surging prices could eventually tip the economy into a recession.

Stocks are still down sharply this year. And the CNN Business Fear & Greed Index, which measures seven indicators of investor sentiment, remains at Extreme Fear levels. But Monday's market rebound might be a perverse "bad news is good news" rally.

Fears about rising stress at Credit Suisse may lead the Fed to slow down its pace of rate hikes.

Inflation, of course, is still a concern. But if the Fed and other central banks now also have to fear how a distressed European bank could lead to further financial contagion, then this might not be the best time to keep jacking up rates by historic amounts.

Just a week ago, traders were pricing in more than 70% odds that the Fed would raise interest rates by three-quarters of a percentage point for the fourth consecutive time at its November 2 meeting. Now the chances of a rate hike that large are down to about 50%, as the probability of a more modest half-point increase grows.

The latest manufacturing data in the US might also give the Fed reason to reconsider how much it should be raising interest rates.

The Institute for Supply Management, a non-profit economic association, reported that its influential manufacturing index fell from August and was below Wall Street's forecasts. That could be a sign that the Fed's rate hikes are already having the desired effect of slowing the economy and reducing inflation.


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