US markets higher as investors focus on Fed, not Gaza
US stock markets finished higher on Tuesday after dovish comments from US Federal Reserve officials pushed Treasury yields lower while investors cautiously monitored developments in the Middle East. The Dow Jones Industrial Average gained 0.4 percent to 33,739, the S&P 500 gained 0.5 percent to 4,358, and the Nasdaq Composite gained 0.6 percent to 13,562.  Following the comments from top Fed officials on Monday, Atlanta Fed President Raphael Bostic said the US central bank does not need to raise interest rates any further, and that he sees no recession ahead. The 10-year Treasury yield came off its 16-year peak on Tuesday, on track for its steepest single-day drop since May, as trading resumed in the US bond market which had been closed for a holiday on Monday. Israeli air strikes attacked Gaza on Tuesday, razing entire districts in the densely populated and impoverished enclave, filling morgues with Palestinians, including women and children, as it took "revenge" for a deadly weekend of Hamas attacks that triggered some of the worst blood-letting in 75 years. "Everybody has one eye on the Middle East conflict and one eye on what's happening with bond yields. The decline in bond yields is the key driver today," said John Praveen, managing director and co-chief investment officer at Paleo Leon. While the Fed's dovish comments were helping stocks on Tuesday and investors were sanguine about the Middle East, Praveen said that view could change if the fighting spread to other countries in the region. "If tensions escalate bond yields might decline further because they're a safe haven but equities would sell off in that instance because of increased uncertainty and risk aversion," he said. Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, also attributed the stock market's gains to declining bond yields even as he said "the level of risk in the world has gone up considerably." "The action yesterday and today, given what's happened in Israel has really surprised me. But the flight to safety has made Treasury yields fall enough to push up equities," Tuz said. Late on Tuesday, Minneapolis Federal Reserve Bank President Neel Kashkari said he believes the US economy is on track for a soft landing in which inflation falls back to the Fed's 2 percent  goal but the unemployment rate does not rise sharply. Earlier in the say, Fed Governor Christopher Waller reiterated the US central bank's determination to reduce inflation to its 2 percent  target, but did not give his view on the economic outlook or the best course for monetary policy. Traders put the chance of interest rates remaining unchanged in November and December at 89.6 percent  and 70.5 percent , respectively, according to CME's FedWatch tool. Later in the week, focus will turn to inflation readings, including September producer price and consumer price indexes as well as the Fed's September meeting minutes. Also Friday is when third-quarter earnings season kicks off in earnest. (Reuters)