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Stocks on track for relief rally despite rising recession fears

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U.S. markets were poised for a relief rally Tuesday, with the S&P 500 and Nasdaq rebounding more than 2 percent in morning trading as investors tried to look past rising recession fears that sparked fierce volatility last week.

Wall Street, which was closed Monday in observance of Juneteenth, is coming off its worst week since March 2020. The S&P 500 sank into a bear market, defined as a 20 percent drop from a recent high, and gave up 5.8 percent over the five-day span as investors digested a three-quarters of a percentage point increase from Federal Reserve’s benchmark interest rate, as well as mounting evidence that consumers are cutting back and growth is slowing amid the highest inflation in 40 years.

Around 10 a.m., the Dow Jones industrial average had advanced 500 points, or 1.75 percent. The S&P 500 had risen 2.4 percent, recovering some of the 5.8 percent it lost last week, and the tech-heavy Nasdaq climbed 3 percent.

“The early market gains are more about the oversold conditions created over the last couple of weeks rather than investor optimism related to an improving economy,” said Wayne Wicker, chief investment officer at MissionSquare Retirement. “Longer term investors will be looking to second quarter earnings announcements next month to determine the impact that inflation may be having on margins.”

Investors are trying to adjust to the tightening environment, which has largely wiped out the gains that stocks made after the sharp downturn at the pandemic’s onset. Later this week, Fed Chair Jerome H. Powell will testify before Congress regarding the recent interest rate hike — the central bank’s biggest since 1994 — and his views of the economy.

“We now see recession risk as higher and more front-loaded,” Goldman Sachs chief economist cautioned in commentary Tuesday, adding that the bank is “increasingly concerned” that the Federal Reserve will “feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further.”

The national average for a gallon of gas was $4.96 Tuesday according to data tracked by AAA, down slightly from recent highs. But in some parts of the country, the average remains above $6 per gallon.

President Biden is preparing for a trip to Saudi Arabia next month, where he is expected to ask the oil-rich nation for help in bringing down pressure in energy markets. Brent crude, the international oil benchmark, was trading above $115 per barrel Tuesday. West Texas Intermediate crude, the U.S. oil benchmark, was trading around $111 per barrel.

Kellogg’s shares climbed 5.5 percent in early trading after the 116-year-old packaged foods giant announced it would split into three companies: one for cereal, one for snacks and one for plant-based foods.

Bitcoin climbed back above $21,000 Tuesday after dipping below the $18,000 threshold over the weekend, the first time it had fallen below $20,000 since 2020. It has suffered a precipitous slide in recent months as inflation and other rising threats to growth pushed investors away from riskier investments. The most popular cryptocurrency, it is now down 70 percent from its November high of $68,990.