Stocks Rise, Bond Yields Inch Closer to Recession Warning

US stock indexes rose at the opening and bond yields edged closer to flashing a recessionary warning signal Tuesday, as investors girded for a period of slower growth and higher interest rates.

The S&P 500 rose 1.0%, while the technology-heavy Nasdaq Composite gained 1.2% and the Dow Jones Industrial Average rose 1.1%. On Monday, major indexes rose after a choppy session, with tech stocks leading gains.

Investors are monitoring peace talks between Russia and Ukraine which summarized in Istanbul Tuesday for the first time in two weeks. Ukraine has in recent days signaled an openness to a neutral status as part of a peace deal with Russia. Stock futures ticked up just before the open amid reports of progress in the talks.

Stock indexes have rallied in recent weeks, reversing much of the losses that came in the wake of Russia’s invasion of Ukraine. Investors have shown calm despite concerns including multidecade high inflation, fresh Covid-19 lockdowns in China and a Federal Reserve which has begun raising interest rates for the first time since 2018.

“Markets seem to have become much more comfortable with the idea that the hiking cycle is here, that it won’t derail economic growth and that equity markets are still the place to be,” said Altaf Kassam, head of investment strategy for Europe, the Middle East and Africa at State Street Global Advisors.

Nielsen Holdings surged more than 20% premarket after The Wall Street Journal reported that a consortium led by Elliott Management and Brookfield Asset Management were close to buying the company for around $16 billion.

An inversion of the US Treasury yield curve has been seen as a recession warning sign for decades, and it looks like it’s about to light up again. WSJ’s Dion Rabouin explains why an inverted yield curve can be so reliable in predicting recession and why market watchers are talking about it now. Illustration: Ryan Trefes

In premarket trading, Tesla rose 1.9%, adding to an 8% rise Monday after the auto maker said it was seeking approval from shareholders to split its stock.

Even stocks were shedding some of their recent gains, with AMC Entertainment down 3.3% and GameStop down 2.6% ahead of the opening bell.

In Europe, the Stoxx Europe 600 pink 1.9% led by auto makers. Barclays fell more than more than 2%, a second day of losses after the bank admitted to a debt sale mistake that would cost it $591 million.

Investors are keeping one eye on bond markets, however, for a sign seen by many as predicting a recession. The yield on the benchmark 10-year note slipped to 2.417% from 2.476% on Monday while the 2-year bond’s yield rose to 2.423% from 2.340%, at the previous day’s settlement.

When the shorter-dated bond’s yield rises above the longer-dated 10-year’s it is known as a yield curve inversion, something which is sometimes considered an indicator of a coming recession.

“There have been more yield curve inversions than recessions but every time there is a recession you can look back and find a yield curve inversion,” said Mr. Kassam.

Traders worked on the floor of the New York Stock Exchange on Monday.


Photo:

Nicole Pereira/Associated Press

President of the New York Federal Reserve John Williams is set to speak later Tuesday, with investors likely to parse his comments for further clues about the central bank’s approach to rate increases. Mr. Williams last week said he was open to a half-percentage-point interest rate increase if warranted by the economy.

In commodity markets, Brent crude, the international oil benchmark, rose 1.3% to $110.98 a barrel.

In Asia, Japan’s Nikkei 225 rose 1.1% while in Hong Kong, the Hang Seng Index added 1.1%. In mainland China, the Shanghai Composite Index is inched down 0.3%.

Write to Will Horner at william.horner@wsj.com

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