S & P 500 rebounds, backed by financials; Nasdaq in the bridle

(Reuters) – The S & P 500 and Dow Industrials rallied on Monday, helped by gains in declining financials, but declines in major technology and Internet stocks kept the Nasdaq in check as investors struggled with rising market volatility ,

Traders work on the New York Stock Exchange (NYSE) floor in New York, USA, October 29, 2018. REUTERS / Brendan McDermid

Healthcare .SPXHC and Consumer Staples .SPLRCS also supported the S & P 500. Stocks of software maker Red Hat Inc (RHT.N.) was one of the biggest gains in the benchmark index with an increase of 42.6 percent, after the company agreed to be bought by IBM Corp (IBM.N) for 34 billion dollars. IBM shares fell 2.4 percent.

Nonetheless, equities were off their highs, with some of the largest growth stocks including Amazon (AMZN.O), Google Parent Alphabet (GOOGL.O) and Netflix (NFLX.O), declining.

Investors are skeptical of a rally given the heightened volatility over the past month due to higher interest rates and worries about the economy and tensions in the trade. The S & P flirted with correction area last week.

"These growth stocks have been overestimated so it's only natural that some of the air comes out of the balloon, which could take a while," said Stephen Massocca, senior vice president, Wedbush Securities, San Francisco.

"But in terms of the rest of the market, which does not have these extreme ratings, I think we're probably pretty close to ending the decline," said Massocca.

The Dow Jones Industrial Average (DJI) rose 120.58 points or 0.49 percent to 24,808.89, the S & P 500.SPX rose 19.74 points or 0.74 percent to 2,678.43 and the Nasdaq Composite .IXIC added 0.77 points or 0.01 percent to 7,167.98.

The increase in financials .SPSY, which rose 2.3 percent, may be an indication that so-called value stocks are enjoying more favor following the loss of growth stocks during the long-running US bull market.

"People look at what beaten bank shares are, and they selectively pick names that make them feel good," said R.J. Grant, Sales Manager at Keefe, Bruyette & Woods in New York.

Investors who are bullish on equities this year point to strong corporate earnings and economic strength. But there are also concerns about the extent of slowing down in earnings growth next year, while weak housing data are raising some concerns about the economy.

Monday's data showed that US consumer spending rose for the seventh consecutive month in September, but income, with moderate wage growth, had the lowest profit in more than a year, suggesting that the current pace of spending is unlikely to continue.

Previously, the relief over Italy, which avoids rating downgrade, has helped global sentiment.

Shares of the car manufacturer Ford Motor Co (F.N) rose 4.3 percent, while General Motors Co (GM.N) after Bloomberg reported that China plans to halve the tax on car purchases.

Progressive problems outperformed the declines on the NYSE by a ratio of 1.99 to 1; on the Nasdaq a ratio of 1.65 to 1 favored the advanced.

The S & P 500 recorded 3 new 52-week highs and 16 new lows; The Nasdaq Composite recorded 21 new highs and 102 new lows.

Additional reports by Sinead Carew of New York and Shreyashi Sanyal of Bangalore; Arrangement by Susan Thomas and Chizu Nomiyama

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