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Dow adds more than 100 points to notch third positive day, as falling Treasury yields lift stocks: Live updates

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Investors should keep cool as Israel-Hamas conflict unfolds, says JPMorgan's Meera Pandit

The benchmark 10-year Treasury yield fell nearly 13 basis points to about 4.65%, as investors sought safe assets amid the conflict. Yields and prices move in opposite directions. The move reflected the first reaction to the Israel-Hamas conflict in the U.S. bond market, which was closed Monday for Columbus Day.

Oil prices also eased after rallying in the previous session, providing relief to investors.

Falling bond yields lifted stocks, as Wall Street remained concerned over the recent quick rise in interest rates. Investors also began looking past the geopolitical risks caused by the Israel-Hamas war, helped by Friday’s stronger-than-expected September payrolls report and optimism ahead of a slate of third-quarter earnings this week.

Palestinian militant group Hamas had launched a surprise attack against Israel on Saturday, prompting Israel to declare war on Hamas. The attack marks the deadliest offensive in 50 years. The market initially had a knee-jerk, downbeat reaction to the conflict on Monday, but stocks rallied on Tuesday.

“I think that move lower in yields has supported equity markets broadly. It may also be bringing relief to markets that perhaps there is some sort of peak in this rapidly upward moving yield in the last few weeks,” said Mona Mahajan, Edward Jones senior investment strategist. “There’s the kind of hope building that perhaps we are at the end of the Fed tightening cycle, as well as the rising rates.”

She noted that investors are also anticipating inflation data due this week, with the producer price index due on Wednesday and consumer price index set to release Thursday.

Another bright spot during the day’s trading session was small caps, with the Russell 2000 index of small-capitalization companies and the S&P Small Cap 600 index gaining just over 1% each. The Russell — up nearly 1% so far this year — rose for a fifth consecutive day, a feat last accomplished in July.

To be sure, some investors, including Gratus Capital chief investment officer Todd Jones, are noting Tuesday’s rally as a consequence of markets having already priced in negative sentiment and being in an oversold condition.

“The inflation picture is still pretty, pretty bad,” Jones said, adding that he expects a flat fourth quarter even if expectations for the third quarter call for positive earnings growth.

PepsiCo shares rose 1.9% after the beverage and snack maker reported better-than-expected third-quarter results and raised its earnings outlook. Several energy and industrial names continued their stretch into the green on Tuesday, with Enphase Energy rising 5% and Generac Holdings gaining 3.8%.

Correction: This story has been updated to correctly reflect Mona Mahajan’s comment on how long bond yields have been rising.

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