US Shares Surge On Risk Appetite Returns

US equities are rebounding this Wednesday, with touted bargain hunting/dip-buying driving the recovery as commodities ease back from Tuesday’s peaks.

The S&P 500 rallied 2.4%, the Dow 2.0% and the Nasdaq 100 3.0%, though investors remain cautious amid geopolitical risks. Following four straight sessions of losses, US equities are enjoying a rebound this Wednesday, with touted bargain hunting/dip-buying driving the recovery as commodity prices ease back from Tuesday’s peaks.

Some traders are citing a more conciliatory tone to the rhetoric from Russian and Ukrainian officials on the prospect for a diplomatic solution to the war as supporting risk appetite (and equities) and weighing on commodities. The Bloomberg Commodity Energy Index was last down more than 5.0% on the session, while other Russia-linked commodities have also seen some pullback.

The S&P 500 index rallied 2.4% to above the 4250 level, now more than 2.7% higher versus Tuesday’s lows near 4160. The Nasdaq 100 index surged 3.0%, rallying to the 13,600s and now more than 3.5% versus Tuesday’s lows in the 13,100s.

The Dow rose just about 2.0% and reclaimed the key 33,00 level. Attention now turns to upcoming risk events including talks between the Russian and Ukrainian Foreign Ministers in Turkey and US inflation data on Thursday.

Though both Russia and Ukrainian appear to have shifted from their current maximalist demands from the other, the two sides remain some way off agreeing on the conditions regarding their future relationship that could facilitate a ceasefire. Expectations for a meaningful breakthrough on Thursday are thus slim.

That suggests it remains far to early to bet on a sustained fall in global commodity markets, especially as Western nations continue to ramp up the sanctions (the US and UK announced plans to stop Russian energy imports on Tuesday and the EU will soon do the same).

Markets also await the Russian response to Western sanctions, which could exacerbate supply shortage concerns. As long as commodities remain at or near current levels, global stagflation fears will remain elevated.

Thursday’s US Consumer Price Inflation report for February will be timely reminder to the Fed and economists of the scale of the challenge posed by inflation in the US and should solidify expectations for a 25bps rate hike from the Fed later this month.

This should be the first of a series of rate hikes, the Fed has said, a backdrop some investors deem as unfavourable for equities.