S&P 500 rebounds as investors hope for easier Fed, easing tensions in China

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The S&P 500 gained on Tuesday as investors weighed tensions between the United States and China with the visit to Taiwan by House Speaker Nancy Pelosi and reacted to comments by the President of the Chicago Fed signaling that the central bank may soon forego steep rate hikes.

The S&P 500 rose 0.47% after falling nearly 1% earlier in the session. The benchmark climbed lows as Pelosi’s plane landed safely in Taiwan on Tuesday morning. The Nasdaq Composite gained 1.01%, boosted by a huge post-earnings gain from Uber.

The Dow Jones Industrial Average was the outlier, slipping 42.08 points, or 0.13%, weighed down by Caterpillar, which lost more than 3% after reporting disappointing quarterly results.

Comments from Chicago Federal Reserve Chairman Charles Evans also gave stocks a boost in the afternoon. Evans said he hoped the central bank could raise its benchmark interest rate by half a percentage point in September and then continue with quarter-point hikes until the start of the second quarter in 2023.

Pelosi is expected to spend the night in Taiwan, Reuters reported. Prior to the trip, Chinese officials threatened action if Pelosi continued his visit. Pelosi is the first Speaker of the House since Newt Gingrich in 1997 to visit Taiwan.

“I don’t think the trip will cause any real economic disruption, but of course the rhetoric and headlines are starting to ramp up and that’s something we need to watch going forward,” said Mona Mahajan, Edward Jones’ senior investment strategist, on CNBC’s “Squawk Box” on Tuesday. “Geopolitical tension has been a theme that we’ve really seen all year and that has weighed on the markets.”

Merchants are also expecting another round of revenue from companies such as Starbucks, PayPal and Advanced Micro Devices on Tuesday after the bell. On the economic data front, investors are awaiting the July nonfarm payrolls report this week, due out on Friday, for further clues about the state of the economy and the labor market.

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