Wall Street soared to its best day in months Monday in a widespread relief rally after some unexpectedly weak data on the economy raised the possibility that the Federal Reserve won’t have to be so aggressive about hiking interest rates.

The S&P 500′s leap of 2.6% was its biggest since July, the latest swing for a scattershot market that’s been mostly falling this year on worries about a possible global recession. Wall Street’s main measure of health was coming off its worst month since the coronavirus crashed markets in early 2020 and is still down nearly 23% for the year.

The Dow Jones Industrial Average jumped 2.7%, and the Nasdaq composite gained 2.3% in Monday’s widespread rally that swept the vast majority of U.S. stocks higher.

Stocks took their cue from the bond market, where yields fell to ease some of the pressure that’s been battering markets this year. The yield on the 10-year Treasury, which helps set rates for mortgages and many other kinds of loans, fell to 3.64% from 3.83% late Friday. It got as high as 4% last week after starting the year at just 1.51%.

Helping to drive markets was a report on U.S. manufacturing that came in weaker than expected, along with data showing a drop off in construction sending from July to August. While that may seem discouraging for the economy, it could mean the Federal Reserve won’t have to be so aggressive about raising interest rates in order to beat down the high inflation damaging households’ finances.

By raising rates, the Fed is making it more expensive to buy a house, a car or most anything else purchased on credit. The hope is to slow the economy just enough to starve inflation of the purchases needed to keep prices rising so quickly. But the Fed also risks causing a recession if it goes too far.

The Fed has already pulled its key overnight interest rate to a range of 3% to 3.25%, up from virtually zero as recently as March. Most traders expect it to be more than a full percentage point higher by early next year.

The yield on the two-year Treasury, which more closely tracks expectations for Fed action, fell to 4.11% from 4.27% following the weaker-than-expected reports on the economy.

Besides stocks, lower rates also boost prices for everything from cryptocurrencies to gold, which can suddenly look a bit more attractive when bonds are paying less in income.

Stocks of high-growth companies and particularly risky or expensive investments have been the most affected by changes in rates. Bitcoin rallied Monday with the reprieve in yields, while technology stocks did the heaviest lifting to carry the S&P 500. Apple and Microsoft both rose more than 3%.

Altogether, the S&P 500 climbed 92.81 points to close at 3,678.43. The Dow gained 765.38 to 29,490.89, and the Nasdaq rose 239.82 to 10,815.43.

Still, cross currents continue to course through markets, and analysts largely expect sharp swings in prices to continue.

Crude oil prices jumped Monday amid speculation big oil-producing countries could soon announce cuts to production. That adds upward pressure on inflation.

It also lifted shares of energy-producing companies to big gains. Exxon Mobil leaped 5.3%, and Chevron climbed 5.6%.

Monday’s rally came despite an 8.6% drop for Tesla, one of the most influential stocks on Wall Street because of its massive market value. The maker of electric vehicles delivered fewer vehicles from July through September than investors expected.

More turbulence for markets could arrive Friday, when the latest update on the U.S. jobs market hits. Along with its reports on inflation, the U.S. government’s jobs report has been one of the most highly anticipated pieces of data on Wall Street each month.

It will be the last jobs report before the Fed makes its next decision on interest rates, scheduled for Nov. 2, and continued strength would give the central bank more leeway to keep hiking. Traders say the likeliest move is a fourth straight increase of a whopping three-quarters of a percentage point, triple the usual move.

For markets to make a meaningful move higher, many investors say they need to see a break in inflation that gets the Fed to ease off its aggressive path.

Such hopes for a Fed “pivot” by investors have repeatedly resurfaced this year, only to get shot down by further accelerations in inflation.

But with stresses building in financial markets as central banks around the world hike rates in concert, conditions have gotten “into the danger zone where ‘bad stuff’ happens,” according to Michael Wilson, equity strategist at Morgan Stanley.

That could get the Fed to blink at some point. The problem, Wilson says, is that another force weighing on markets could soon come to the forefront: weaker corporate profits.

A suite of challenges from higher interest rates to the surging value of the U.S. dollar may be setting things up for “the freight train of the oncoming earnings recession,” he wrote in a report. Companies are getting ready now to report in upcoming weeks how much they earned during the summer, and analysts have been downgrading their expectations.

(AP)